SEC Cites Risks in Target Date Funds
Among infractions cited were marketing materials with asset allocation disclosures that differed from the TDFs’ prospectus disclosures.
The Securities and Exchange Commission’s exam division is warning about deficiencies associated with target date funds, including misleading disclosures in prospectuses and advertising.
In a just-release Risk Alert, the SEC’s Office of Compliance Inspections and Examinations cites deficiencies and weaknesses observed during recent exams among target date and money market funds as well as mutual fund complexes.
OCIE staff examined more than 30 TDFs, including funds with glide paths “to” and “through” retirement, to review whether the TDFs’ assets were invested according to the asset allocations stated in the funds’ prospectuses, and whether the associated investment risks were consistent with fund disclosures (including representations made in marketing materials).
While most TDFs appeared to be in general compliance with the Investment Company Act of 1940 in the areas reviewed, OCIE examiners found instances of deficiencies or weaknesses related to TDFs’ disclosures and compliance programs.
For instance, TDFs had marketing materials with asset allocation disclosures that differed from the TDFs’ prospectus disclosures, including glide path changes and the impact of these glide path changes on asset allocations.
Some TDFs also failed to disclose conflicts of interest, such as those that may result from the use of affiliated funds and affiliated investment advisors.
Many TDFs had incomplete or missing policies and procedures, including those for:
- Monitoring asset allocations, including ongoing monitoring;
- Overseeing implementation of changes to their current glide path asset allocations;
- Overseeing advertisements and sales literature, which resulted in advertising disclosures that were inconsistent with prospectus disclosures and were potentially misleading; and
- Monitoring whether disclosures regarding glide path deviations were accurate.
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