The U.S. Securities and Exchange Commission wants investment companies to think harder when suggesting whether a particular product is appropriate for a particular type of customer.
The SEC has tried to make that point by including a proposed amendment to Rule 156, a regulation that implements the Security Act of 1933, in the new proposed rules on target-date funds.
The amendment would deal with investment company suggestions about what type of customer should consider buying a product.
A target-date fund is a mutual fund or other investment option, such as a variable annuity investment option, with an asset allocation that shifts more toward bonds and other fixed-income securities, and away from stocks, as holders near the year when they hope to retire.
Some target-date funds marketed to older workers have proved to be far more variable in the past 2 years than holders had expected, and the SEC now wants investment companies to do more to make investors aware of a fund’s possible exposure to stock market risk, by, for example, putting a tagline describing a target-date fund’s asset allocation percentages after the fund name.
The proposed Rule 156 appropriateness amendment would affect all types of investment companies and investment funds, not just target-date funds, officials say in a preamble to the proposed target-date fund rules.