From the April 2008 issue of Investment Advisor • Subscribe!

It's About Time

More On Legal & Compliance

from The Advisor's Professional Library
  • The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations.  When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.    
  • RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients’ privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.

Investment industry execs seem to agree that the SEC's proposed short-form mutual fund prospectus is long overdue. The novel-length, arcane prospectus that investors get now is impossible to digest and usually ends up in the trash.

The SEC's proposed rule, if adopted, would require key information about a mutual fund to appear in plain English in a standardized order at the front of the mutual fund statutory prospectus. A summary mutual fund prospectus could also be delivered to investors via a Web site. While issuers would still be required to file the larger prospectus, they would not have to deliver it to investors unless one is specifically requested, the proposed rule says.

A recent commissioned online study conducted by Forrester Consulting on behalf of NewRiver entitled, The Short-Form Prospectus: Industry Poised For Savings, Transparency, and Innovative Ways to Communicate With Investors, found that nearly all the respondents--made up of 150 companies that sell mutual funds and annuities--were in favor of the short-form prospectus, with 95% stating they would be somewhat or very likely to consider delivering the short-form prospectus if the SEC ruling prevails. More specifically, the study says "participants believe this streamlined delivery would result in a significant opportunity for reducing costs and could lead to better ways of producing and delivering investor communications."

But the SEC has been flooded with comment letters (the comment period closed February 28) that raise some issues of concern with the proposed rule. For instance, the Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI) told the SEC in a joint letter that requiring quarterly updates of performance and portfolio holdings in the summary prospectus "would reduce the industry's incentive to utilize the summary document, due to the significant administrative and operational burdens it would create."

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