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Retirement Planning > Saving for Retirement

Streamlining disclosure for investors

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In an effort to minimize increasing fulfillment costs, fund companies have been combining multiple fund prospectuses into a phone-book-sized “one-size-fits-all” document distributed in a single mass mailing. What began as a noble effort to inform investors and protect them has resulted in disclosure that is costly, wasteful and confusing. As the industry moves toward greater transparency in mutual fund sales transactions and standardization of information, a central need has been simplicity.

After more than a decade of effort by the fund industry and the U.S. Securities Exchange Commission, the answer is on the horizon. In November 2007, the SEC announced a proposed rule for a shorter, simpler, standardized prospectus that would tell investors what they need to know within three to four pages. The stated goal is to provide the average investor with clear, succinct information and to standardize information to facilitate fund-to-fund comparisons.

The proposed rule is designed to simplify investor disclosure by providing fund investors with an easier to read document and better enable “fund-to-fund” comparisons. It includes two key components:

  • The summary prospectus, which introduces a streamlined prospectus for fund investors, in lieu of the current statutory prospectus. The summary prospectus could be delivered in print or electronically. Fund companies would also be required to make it available online.
  • Layered disclosure on the web introduces a layered approach to conveying fund information. Investors seeking more information than what is contained in the summary prospectus would be able to access it online. Fund companies would be responsible for providing electronic versions of the statutory prospectus, statement of additional information, shareholder reports and supplements.

If financial intermediaries wish to deliver a summary prospectus to investors, it would behoove the fund companies to make the standalone document available. In this case, the fund companies would submit two separate filings on the SEC’s mutual fund database “EDGAR” (Electronic Data Gathering, Analysis, and Retrieval system) – the summary prospectus included at the front of the statutory prospectus and a separate, standalone summary prospectus, as well as a URL for investors to electronically access the statutory prospectus and other related fund disclosure information.

Forrester Consulting estimates the summary prospectus could save fund companies $300 million annually. Even greater cost savings could be achieved by combining the summary prospectus and the trade confirm in a single mailing or by moving to cost-efficient e-delivery. In fact, many believe the summary prospectus and its layered disclosure via the Web will be a huge impetus to migrate the industry from paper-based to electronic disclosure. Gone will be the days of “pick and pack” warehouse fulfillment as digital print-on-demand and e-delivery gain a new stronghold. The industry spends roughly $1 billion each year producing and delivering paper prospectuses yet studies show 67 percent of investors don’t even read it. When you factor in other forms of disclosure – such as semi-annual and annual reports, supplements, and statements of additional information – the total annual bill for paper-based investor disclosure is $5 billion.

The Department of Labor has been working in conjunction with the SEC as they prepared the summary prospectus proposed rule. The regulations around prospectus delivery to plan participants have not been as strict as those relating to retail investors. In fact, unless an individual’s retirement plan qualifies under Section 404(c) “safe harbor” provisions, he or she may never see a prospectus. If the summary prospectus is enacted, the DOL is expected to mandate a similar provision for all 401(k) plans requiring that all plan participants be provided a summary prospectus and a website where they can electronically access the statutory prospectus and other related disclosure information.

As individuals now bear more of the responsibility for paying for their retirement, the investments they make through brokerage accounts and retirement plans are critical to securing their financial future. For too long the industry has spent too much money and wasted resources to over-communicate to investors. Investors need clear, concise information about their investments and ready access to additional information. The summary prospectus offers a significant opportunity to reduce costs and investor confusion with a better, simpler model of investor disclosure. And it offers a promising bridge toward greater transparency and clarity in investor communications and mutual fund transactions. It’s time to deliver a simplified prospectus that investors will read and understand.

Len Driscoll is Vice President of Product Management at NewRiver Inc. For more information, call 800 481-2331 or visit us online at or at


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