Open-End Funds: Proposed Amendments to Reporting and Disclosure Requirements

WHAT HAPPENED?

On Aug. 5, 2020, the United States Securities and Exchange Commission proposed a new set of amendments to mutual fund and exchange-traded fund disclosure requirements. The package includes, among other things, changes to visual presentation requirements and the disclosure framework for open-end fund shareholder documents.

This initiative is part of a larger program to improve and modernize the capital markets experience for retail investors.

KEY TAKEAWAYS

Under the proposed amendments:

  • Existing retail investors would no longer receive prospectus updates and shareholder reports but instead would be given a streamlined shareholder report with more concise, easy to read information. Funds would be encouraged to use more dynamic design elements than currently required such as charts and graphs, tables, question and answer sections, and interactive digital reports.
  • Extended information currently delivered to retail investors via annual and semi-annual reports would be posted electronically instead and delivered upon request, free of charge and filed semi-annually in Form N-CSR.
  • New fund shareholders would continue to receive a fund prospectus. Funds would no longer issue annual prospectus updates to shareholders. Instead, funds would provide the shareholder report including a summary of changes from the previous year and notify shareholders of material fund changes on a rolling basis. The fund’s prospectus would remain available online and for delivery to shareholders upon request.
  • The scope of Rule 30e-3 would shift to exclude open-end funds. The rule, which allows funds to satisfy shareholder report delivery requirements by posting the information electronically, would still include registered management companies and registered unit investment trusts.
  • Changes would be made to fee and risks prospectus disclosures. The provision aims to improve readability of fee tables and summaries and clarify fund risk disclosures for prospective shareholders.
  • Fee and expense information in advertisements would be required to match information in prospectus fee table presentations.

WHAT DOES THIS MEAN FOR ME?

If you manage open-end funds (mutual funds or ETFs registered on Form N-1A), disclosure requirements may change and could affect prospectus and shareholder report delivery and formatting.

The proposed amendments have a entered a 60 day public comment period for those wishing to provide input to the SEC.

Fairview will continue to update you with the latest news on the proposed amendments and other regulatory changes. If you have questions about how these provisions could affect your funds or firm, Fairview can help. Contact us today with inquires about the proposed amendments.

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Fairview®
Founded in 2005 with the goal of developing streamlined solutions for investment advisers, Fairview® is now servicing investment advisers, foundations, and funds with nearly $300 billion in collective assets.