WASHINGTON: The SEC has proposed new disclosure rules for the promotional literature used by mutual fund companies.The SEC wants asset managers to be more up-front about both their funds' past performance and the fees associated with investing in each fund.
The commission is also proposing that fund companies set up a toll-free phone number through which investors can get up-to-date performance figures on specific funds. The SEC is soliciting comments on the proposal until July 31.
The SEC said that the primary motivation behind the proposed rules was the unrealistic expectations it felt many fund companies placed in the minds of investors during the late stages of the 1990s bull market. During that period, some fund companies are said to have focused investor attention on impressive short-term returns that were fed largely by the technology and dot-com bubbles.
"Many fund companies have been promoting funds based on returns,
said SEC spokesman John Nester. "We think investors should be making decisions based on other important factors beyond just past returns."
The proposal would require that fund literature containing past performance statistics include disclosure that past performance does not guarantee future results, and that current performance may be lower or higher than the performance quoted. The SEC is also seeking to require fund literature to include disclosure that would direct investors' attention to a fund's charges and expenses, as well as require more prominent disclosure of information, such as the dates during which the quoted performance occurred.
The plan would also reemphasize that such promotional material is subject to the antifraud provisions of the federal securities laws.
"This is a good move for investors,
said Dan Sondhelm, partner at SunStar, a PR firm that represents money managers. "During the bull market, we saw many funds come out of nowhere and post incredible returns. After the crash, a lot of these guys went out of business, and investors got hurt."