The Securities and Exchange Commission is asking investors who have complained about mutual funds to critique the agency’s proposal for requiring brokers to disclose fund costs.
For the first time, the SEC is contacting aggrieved individual investors to comment on a proposed rule, said Susan Wyderko, head of the SEC’s investor-education office.
The SEC sent the disclosure forms to about 1,300 people whose names were pulled from a database that tracks investor complaints.
“We knew they were unhappy,” said Wyderko. “We therefore thought they would be an excellent critical audience to evaluate our proposed disclosure.”
The SEC gave initial approval last month to a plan requiring brokers to detail costs when investors buy a mutual fund. The plan is part of a regulatory crackdown on abuses in the $7.4 trillion mutual fund industry, where more than 20 companies are under investigation for improper trading.
The SEC is seeking comment on whether the disclosure forms’ wording is clear and useful, Wyderko said. She said the SEC also plans to have focus groups evaluate the new language.
“Most investors are not lawyers,” said SEC Commissioner Cynthia Glassman. “The outreach to the investors is so important because we need to make sure that these disclosures are written in a way that they understand.”
The disclosure proposal, issued for public review in January, would require brokers to reveal if they were paid any incentives and to give an accounting of a fund’s sales charges, annual fees and other costs to customers when they purchase a mutual fund.
The SEC plan also would add information on costs to the confirmation statement that investors get after buying a fund. The disclosure plan could affect 91 million U.S. investors who save through mutual funds.
Some investors contacted by the SEC have already submitted comments about the forms.
“After reading the info you sent, I think you are on the right track,” wrote mutual fund investor John Creswell. “All I can say is it’s about time.”
The SEC also is distributing the proposed disclosure forms to investment clubs, public libraries and other organizations whose members may be investors, Wyderko said.
The SEC has added a fill-in-the-blank form on its Web site for comments.
“There is always a tension when you are dealing with disclosure. You want to inform but not overwhelm,” Wyderko said. “We want to get that balance right.”
The SEC is asking for comment on the plan until April 12.
