SEC Votes to Make Funds, ETFs Simplify Their Fee Disclosures

The Securities and Exchange Commission voted Wednesday to require mutual fund and exchange-traded funds to provide concise, tailored shareholder reports that highlight fund expenses, performance and portfolio holdings.

The agency voted to require mutual funds and ETFs to transmit “concise and visually engaging shareholder reports and to promote transparent and balanced presentations of fees and expenses in investment company advertisements.”

SEC Chairman Gary Gensler said that shareholder reports “are amongst the most important documents that fund investors receive. These reports, however, often are more than 100 pages in length. As a result, a retail investor looking to understand the performance, fees, and other operations of a mutual fund or exchange-traded fund may need to sift through extensive financial information.”

The final rules “will require fund companies to share a concise set of materials that get to the heart of the matter,” Gensler added. “I am pleased to support these final rules because they will help investors better understand fund disclosures and help ensure that the information investors receive in investment company advertisements is transparent and balanced.”

SEC Commissioner Caroline Crenshaw, a Democrat, added that with the rule the “presentation of investment company fees and expenses in advertisements and sales literature [will] be standardized, consistent with the relevant prospectus fee table, and be reasonably current.”

The rule “also takes aim at funds that hold themselves out as being ‘no-expense’ or ‘zero-expense funds, but conceal other pertinent information about potentially hidden costs, or expenses that may be incurred in the future,” Crenshaw said. “Misleading expense presentations are anathema to transparent markets and can lead investors to make financial decisions that are against their interests, and I hope that today’s rule will help remedy these deficiencies.”

The instructions for the revamped reports, the SEC said, “will encourage the use of graphic and text features to make them more effective. Funds will be required to tag the information in their reports in a structured data format.”

The rule amendments also require funds “to make certain information that may be more relevant to investors and financial professionals who desire more in-depth information available online and available for delivery free of charge to investors on request.”

That information, the agency said, “will no longer appear in fund’s shareholder reports but will remain available to investors on a website identified in the shareholder report and must be filed semi-annually” with the Commission.

With the new rules fee and expense presentations in registered investment company and business development company advertisements and sales literature must “be consistent with relevant prospectus fee table presentations and be reasonably current,” the SEC said.