From the January 2009 issue of Research Magazine • Subscribe!

SEC Requires 'Concise' Info

More On Legal & Compliance

from The Advisor's Professional Library
  • Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firm’s policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
  • Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIA’s failure to stay within the scope of the Section 28(e) safe harbor may violate the advisor’s fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients’ transactions.

The Securities and Exchange Commission has voted unanimously to require fund companies "to provide investors with a concise summary -- in plain English -- of the key information they need to make informed investment decisions ... at the front of a fund's prospectus." In addition, the SEC has approved amendments to encourage funds "to make greater use of the Internet so investors can receive more detailed information in a way that best suits their needs," according to the regulatory body.

"Today's action will help mutual fund investors more easily obtain the key information they need -- such as the description of the fund's investment objectives and strategies, fees, risks and performance," explains SEC Chairman Christopher Cox. "The summary prospectus will quickly give investors a basic understanding of the fund and will permit them readily to compare one fund to another."

Andrew J. Donohue, director of the SEC's division of investment management, adds, "Many investors often find current fund prospectuses to be lengthy, legalistic and confusing. This mutual fund disclosure framework will provide information that is easier to use and more readily accessible, while retaining the comprehensive quality of the mutual fund information available today."

In late November, the Investment Company Institute welcomed the "summary prospectus" decision. According to ICI President and CEO Paul Schott Stevens, ICI research has shown that investors would prefer such a document to the long-form statutory prospectus.

"ICI has worked with the Commission for almost 15 years to promote the development of a short-form prospectus," adds Schott Stevens. "In today's financial environment, investors need clear, concise disclosure more than ever."

While the rule changes are effective on February 28, 2009, funds must begin complying with the form changes on January 1, 2010.

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Janet Levaux, MBA/MA, is the managing editor of Research; reach her at jlevaux@researchmag.com.

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