The Securities and Exchange Commission is urging mutual fund sponsors to list funds’ principal risks in order of importance and not alphabetically in mutual fund prospectuses.
The agency’s Division of Investment Management stated in a recent notice that some funds appear to list their principal risks in order of importance, with the most significant risks appearing first. “We strongly encourage all funds to consider this approach to better highlight for investors the risks that they should consider most carefully,” IM’s Disclosure Review and Accounting Office said.
IM also recommends that funds “tailor principal risk disclosure rather than utilize generic, standardized disclosure across funds, especially where different funds have differing investment objectives and policies.”
Funds are also encouraged to consider disclosing that a fund is not appropriate for certain investors given the fund’s characteristics.