The Securities and Exchange Commission has proposed what Cipperman Compliance Services is calling a “complete overhaul” of the disclosure framework for mutual funds and exchange traded funds, including to the prospectus, annual report and fund advertising.
The Investment Company Institute says the proposed framework, announced Wednesday, would feature “concise and visually engaging shareholder reports” highlighting information that is particularly important for retail investors to assess and monitor their fund investments.
The proposal is now out for a 60-day comment period.
“The Commission is committed to improving the Main Street investor experience and modernizing information content and delivery,” said SEC Chairman Jay Clayton said in a statement.
“By encouraging fund disclosures that use modern communication techniques to emphasize clearly and concisely the information investors find most useful, [the] proposal should facilitate better-informed decision making,” Clayton added.
Details of Disclosure Plan
The proposal would:
- Require streamlined reports to shareholders that would include, among other things, fund expenses, performance, illustrations of holdings and material fund changes;
- Significantly revise the content of these items to better align disclosures with developments in the markets and investor expectations;
- Encourage funds to use graphic or text features — such as tables, bullet lists, and question-and-answer formats — to promote effective communication; and
- Promote a layered and comprehensive disclosure framework by continuing to make available online certain information that is currently required in shareholder reports but may be less relevant to retail shareholders generally.
Overall, the framework aims to “provide an alternative approach to keeping investors informed about their ongoing fund investments,” ICI explained in a recent note on the SEC’s plan.
“Instead of receiving both prospectus updates and shareholder reports, which today can be lengthy and complex, existing investors would receive the streamlined shareholder report,” the mutual trade group said. “This would provide investors with timely and concise information to effectively assess and monitor their fund investments.”