SEC Announces New Target-Date Fund Rules

The U.S. Securities and Exchange Commission (SEC) recently proposed new rules for target-date funds that aim to provide enhanced information to investors.

Here are the key points from SEC chairman Mary Schapiro’s statement on the proposed rules:

- A proposal to require advertisements and marketing materials for target date funds that include a date in their name to also include the fund’s expected asset allocation at the target date.

“The asset allocation would appear immediately adjacent to the fund’s name. For example, the XYZ 2020 Target Date Fund would include a tagline adjacent to its name that would say, hypothetically, “40% equity, 50% fixed income, 10% cash in 2020.”

“Such information would enable investors to assess the asset allocation variability among target date funds, and consider whether the asset allocation meets the investor’s conservative, moderate, or aggressive expectations.

“The tagline gives investors more than just a date to go on when looking at a fund name in advertising and marketing materials. At the same time, the tagline next does not overwhelm an investor with complicated financial information.

“Under the proposal, ranges such as “40-45% in equity” would be permitted in the tagline. I am particularly interested in public comment on whether such ranges are appropriate, or whether they should be constricted in order to foster investor understanding.”