UNITED STATES: SEC Proposes to Improve the Retail Investor Experience through Modernized Fund Shareholder Reports and Disclosures

Wednesday August 5 2020

The  Securities and Exchange Commission (SEC) has proposed comprehensive modifications to the mutual fund and exchange-traded fund disclosure framework to better serve the needs of retail investors. The proposed disclosure framework would feature concise and visually engaging shareholder reports that would highlight information that is particularly important for retail investors to assess and monitor their fund investments. The proposal is a central component of the Commission’s investor experience initiative and responds to comments the Commission received in response to a 2018 request for comment on retail investors’ experience with fund disclosure.

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.

The proposed framework would provide an alternative approach to keeping investors informed about their ongoing fund investments. Instead of receiving both prospectus updates and shareholder reports, which today can be lengthy and complex, existing investors would receive the streamlined shareholder report. This would provide investors with timely and concise information to effectively assess and monitor their fund investments. Information currently required in shareholder reports that is not included in the streamlined shareholder report would be available online, delivered free of charge upon request, and filed on a semi-annual basis with the Commission.

In addition, the proposal would amend prospectus disclosure requirements to provide greater clarity and more consistent information regarding fees, expenses, and principal risks. To improve fee- and expense-related information more broadly, the proposal would also amend investment company advertising rules to promote more transparent and balanced statements about investment costs. The proposed advertising rule amendments would affect all registered investment companies and business development companies.

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