Investment Product Disclosure

Background

In 2016 approximately $17.8 trillion was invested in mutual funds. Roughly 44 percent of all US households (some 55 million) invested in mutual funds. According to the Investment Company Institute, 37 percent of households with a person age 65 or older owned mutual funds in 2016. Fifty percent of households headed by someone age 55-64 owned mutual funds, as did 54 percent of households headed by someone age 45-54. With over 15,000 mutual funds now available, it is essential to have clear and full disclosures of information such as fees, future tax burdens, risks, and administrative costs, so that investors can make appropriate choices.

Federal securities laws set technical standards for published information on securities, leaving the individual investor to sift through a lot of highly technical information. The Securities and Exchange Commission and the Government Accountability Office have found that the information provided on investor statements does not make investors aware of how much they pay in fees. Moreover a bewildering array of charges makes comparison difficult, and current rules do not require complete and timely disclosures of certain types of fees (such as revenue sharing or “shelf-space” fees). Many investors are confused or uninformed about whether investments are federally insured. AARP research has shown that older consumers are often unaware that investment products sold by banks are not insured by the Federal Deposit Insurance Corporation.

Investment Product Disclosure: Policy

Fund prospectus disclosures

In this policy: FederalState

Mutual fund prospectuses and other literature should clearly and fully disclose information such as the fund’s yield, before-tax and after-tax performance returns, and administrative costs and risks of investing. This information should be provided in plain language and a standardized format to allow comparison.

The Securities and Exchange Commission (SEC) and the states should work with the securities industry and other interested parties to develop simplified, understandable prospectuses and standardized disclosures that consumers are likely to read and to make more detailed documents available on request.

To the greatest extent possible, disclosures to investors should be made prior to or at the point of sale so that they offer real help in making investment decisions.

Fund performance and safety

In this policy: FederalState

Mutual fund advertisements should not mislead investors about the safety of a particular fund and should disclose the total rate of return and prior fund performance during both adverse and favorable market conditions. An easily understood standard should be established to describe the risks involved in mutual fund investing.

Prospectuses and disclosures should be tested to ensure they are understandable to the average investor.

Disclosures should clearly state that past performance is not an accurate predictor of future performance.

Investment instruments that can be speculative, such as derivatives, should be explained and disclosed clearly so that investors understand the nature of the product.

Bank sales of investments such as mutual funds and annuities must be properly regulated to prevent consumer confusion about the uninsured status of these products and their attendant fees, costs, and risks.

Fees and costs

In this policy: FederalState

The SEC and the states should require broker-dealers to disclose detailed information to investors regarding the total amount of fees and commissions that investors will pay for investing in a particular product. These disclosures should be made in a clear, standardized format so investors can compare the fees, commissions, and rates of return among various investment products.

If a broker or other investment sales professional receives a special commission or incentive for the sale of a particular product, this should be disclosed to the customer at the time of sale and on the account statement.

Account statements provided to investors should also clearly state the current value of the investments, any change in value during the statement period, the commissions paid at the time of each sale, and the cost of fees on an ongoing basis.

State regulation

In this policy: FederalState

The authority of state officials to review new securities issues should not be further weakened.