SEC Issues DOL Fiduciary Rule Guidance for Mutual Funds

The disclosure should "specifically identify each intermediary whose investors receive a sales load variation" and be presented "in a clear, concise and understandable manner, and should include tables, schedules, and charts where doing so would facilitate understanding."

Some mutual funds are also considering streamlined sales load structures to simplify costs for investors and to help address operational and compliance challenges that can exist for intermediaries that sell shares of multiple funds, the SEC guidance points out.

Among concerns raised by mutual funds is that if a fund creates multiple scheduled variations, it could lead to lengthy prospectus disclosure that may be difficult for an investor to navigate and comprehend.

The SEC states in the guidance, however, that "given the Commission and staff focus on improving disclosure, we would not object if lengthy sales load variation disclosure for multiple intermediaries is included in an appendix to the statutory prospectus."

As to funds offering new share classes that differ with respect to sales loads, transaction charges and certain ongoing expenses, the guidance explains what filings are needed, for instance, when adding a new class to an existing fund.

Fund companies are pursuing new "T" shares, or "transaction" shares, while others are issuing more traditional front load funds. The transaction share class has no set definition and can vary from fund to fund. Some mutual fund shops refer to T shares and mean a 2.5% load while others refer to T shares as a share class with a scheduled variation. T shares can also be referred to as institutional-type share classes with no payments at all to distributors.