Experts have widely differing opinions about how
to provide more useful information to investors, without creating
burdensome administration that could further drive up fund costs. Others
express concern about putting all of the focus on fund expenses to the
exclusion of other fund characteristics investors should consider, such as
risk,
performance, and investment objectives.
Nonetheless, regulators have mandated broad reforms affecting how
mutual fund costs are reported, though they have not yet gone into effect.
Standardized fee disclosure
One rule would require funds to state in their shareholder reports the total
fees paid on a $1,000 investment in the previous year, based on the fund's
actual expenses and return for the period. Under this rule, funds would also
have to state their costs based on a hypothetical 5% annual return, so that
investors could easily compare costs from fund to fund. In another approach,
funds would disclose the actual dollar amount based on the size of the
investment.
Point of sale disclosure
Another proposal would require funds to disclose fund fees, expenses, and
conflicts of interests at the time of sale, either in person, over the telephone,
or in paper format.
However, many in the industry prefer an online disclosure document that investors could access through a
broker's
Web site. Online disclosure, they say, would enable investors to customize
the level of detail they need and evaluate costs in light of other fund features.
Enhanced portfolio disclosure
The
SEC
has also passed new rules to provide investors with more current information
about a fund's holdings, including the following:
Quarterly, rather than bi annual, disclosure of the fund's complete portfolio holdings Graphical or tabular representations of a fund's portfolio holdings across major investment categories in shareholder reports
One rule would require funds to state in their shareholder reports the total
fees paid on a $1,000 investment in the previous year, based on the fund's
actual expenses and return for the period. Under this rule, funds would also
have to state their costs based on a hypothetical 5% annual return, so that
investors could easily compare costs from fund to fund. In another approach,
funds would disclose the actual dollar amount based on the size of the
investment.
