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Industry Groups Support SEC Summary Proposal

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The fund industry’s Investment Company Institute says it agrees with federal regulators over the practice of supplying fund investors with short, simple summary prospectuses. The long-form prospectus should be made available online for those who want additional information. ICI research has shown that most fund investors do not read the longer prospectus and express a strong desire for a more concise document like the proposed summary, according to the organization.

“After 15 years of effort by the fund industry and the SEC, it appears that fund investors may soon get their wish — a summary prospectus of a few pages that tells them in plain English what they need and want to know,” says ICI President and CEO Paul Schott Stevens. “By pairing the summary prospectus with easy access to the long-form prospectus, the SEC’s proposal will increase the chances that investors will actually use funds’ key investment information, with no loss of the detailed disclosure some market participants need.”

Under the SEC’s proposal, funds could deliver the summary prospectus to new and existing fund investors and post more detailed information, including the long-form prospectus and the Statement of Additional Information, on the Internet; additional information would also be available in paper upon request.

ICI estimates that up to 80 percent of fund companies would find it cost-effective to use the summary prospectus if the SEC would eliminate the proposed requirement that funds update performance data and top-10 fund holdings every calendar quarter in the summary. ICI supports the updating of all information in the summary prospectus on an annual basis and contends that a quarterly updating requirement would place unnecessary additional administrative burdens on fund firms and that holdings information and performance data are already widely and freely available to investors from many other sources.

In place of quarterly updating, ICI proposes that the summary prospectus direct investors to the fund company’s website for up-to-date performance and portfolio information.

Furthermore, ICI estimates that the cost of such quarterly updating would erase much of the cost savings that most funds would realize from no longer printing and mailing the long-form prospectus. According to ICI’s cost-benefit analysis, if quarterly updates are required, only 30 percent to 45 percent of funds are likely to use the voluntary summary prospectus.

“Quarterly updating could be expensive and time-consuming enough to prevent many funds from using the summary prospectus,” says Stevens. “That outcome would deprive millions of investors of the benefits of the SEC’s proposal.”

The Securities Industry and Financial Markets Association, or SIFMA, has also urged the SEC to eliminate the quarterly updating requirement and move quickly to adopt a summary prospectus rule.

Janet Levaux is the managing editor of Research; reach her at [email protected].


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