The SEC has proposed a complete overhaul of the mutual fund and ETF disclosure framework, including changes to the annual report, the prospectus, and fund advertising. The SEC recommends eliminating the delivery of annual and semi-annual reports and prospectuses to current shareholders. Instead, fund sponsors would deliver a summary and streamlined annual report that includes concise expense, performance, and holdings information. Funds must still prepare annual and semi-annual reports, which would be filed and available upon request. The SEC also wants to revise the fees and risks section of the prospectus, moving much of the text out of the summary prospectus. The SEC also proposes to make fund advertisements more clear and comparable with standardized performance information.
We applaud the changes to the annual reports. Although it requires that fund firms create yet another document, it will ultimately save them the hassle of delivering voluminous (and inscrutable) shareholder reports along with an updated prospectus that nobody reads. We are more dubious about the tinkering with the prospectus or advertising rules as past efforts haven’t seemed to satisfy retail investors or make them more savvy. Regardless, the proposals will likely generate significant debate and comment before becoming final.