United States: Fee-Disclosure Pitch Would Boost Transparency, Competition

The Securities and Exchange Commission's Investor Advisory Committee recently urged the agency to increase mutual fund cost disclosure to help investors understand how much their mutual funds cost them over time.

The commission is not required to act on the committee's recommendation. But giving investors better cost data would obviously be positive and directors should support that cause.

Prospectus and annual shareholder report disclosures have been unsuccessful. Too many shareholders do not read them or understand them. Putting more relevant information in an individual account statement in dollar terms will enhance shareholder knowledge and could prompt more to read the documentation they receive. Investors make more appropriate decisions when they have clear, transparent and comparative information.

Although any rule adopted by the SEC is unlikely to impose a direct burden on board members, they will be – as always – tasked with ensuring that shareholders are informed. A requirement to allow specific dollar expense data will help them achieve that goal because individual shareholders will simply understand their costs better. Boards should encourage the SEC to consider all the relevant factors to ensure that any proposed rule will be worthwhile to shareholders, especially whether the benefits outweigh any costs. Directors should make clear to the SEC that the rule isn't worth it if the costs are too high.

In addition, the board will be tasked with overseeing fund management's compliance with any eventual rule, as it would be for any other new regulation. Directors should pay close attention to whether the SEC standardizes disclosures across all similar types of funds. It's possible that there will be different rules for different types of funds, and boards should be prepared for the possibility that disclosures will need to be tailored for each.

The committee provides a strong set of suggestions. For decades, the industry has given investors hypothetical performance figures commonly referred to as "mountain charts," which reflect fund performance over an extended period of time, net of fund expenses. Yearly expense ratios are also already shown in shareholder annual reports. The committee wants that same standard applied to cost data so that shareholders can understand how much they are paying and how this impacts their individual investments over an extended period.

The committee raised a few possible examples of the types of information that can be provided. Though directors won't be able to fully assess the extent of their duties until the rule is finalized, they should pay close attention to the specific data required, because any new rule could potentially impact their fiduciary duties. Directors should focus on the data format that the SEC requests. That format must be clear, concise and understandable for the typical shareholder. If the format requested is shorter and clearer, then it's more likely that shareholders will read the information.

It's possible that funds will be required to disclose their costs, benchmarked against the average cost of similar funds that are placed in the same category. This would help investors determine how their own costs compare to similar funds. The SEC should explore the feasibility of such an approach. They will have to define fund categories, what they use as the cost benchmark for those categories and how best to present that information. Such disclosures could be even more effective if they also were to show approximately how much each investor would pay over various time periods, relative to the category average. Some funds already voluntarily provide this information.

The SEC could also require funds to present a graph that displays the impact of investor costs. It would show the impact on total accumulations of the fund's actual expenses and the category average expense, using an assumed rate of return and over an extended holding period. This would allow investors to understand the total dollar amount of fees that they are paying over longer holding periods.

The SEC must balance the costs of providing this information and the benefits of doing so. Then it's up to the board to help make sure that shareholders fully understand what they are buying, the costs involved and the substance of the data. The biggest benefit to increased transparency is that shareholders would be better informed. On the flip side, this transparency is what will create the biggest increase in oversight duties for board members.

One interesting committee view is that even if shareholders disregard the proposed cost per account disclosures, whatever rule is proposed may create more competition in the industry because of the transparency that is created. The recent Department of Labor fiduciary rule – although limited to Erisa – will also move the industry to be more competitive, especially regarding expenses. The transparency afforded in the fee-disclosure proposal would create expanded competition beyond just Erisa accounts. Costs are often a factor in shareholder decisions, but above-average, long-term investment performance will always be the primary basis for the choice of mutual funds.

The industry and the SEC have continuously worked to give investors relevant information before they make investment decisions and while they are shareholders. Summary prospectuses and improved shareholder reports have all been instituted to that end. The committee has determined that these current disclosures have not been effective.

The Investor Advisory Committee's proposal is a work in process that will take time to develop. Though not perfect, it is a strong start, and it sets the stage for a continuing objective of educating shareholders.

Originally published by Board IQ

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.