(Photo: SEC)
The Securities and Exchange Commission's exam division has found mutual funds and exchange-traded funds have provided flawed or missing disclosures to investors around matters like fees, investment strategies and fund performance, the agency warned Tuesday.
The disclosures were made in fund filings, advertisements, sales literature and other shareholder communications.
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The Division of Examinations conducted a series of exams that focused on mutual funds and exchange-traded funds to assess industry practices and regulatory compliance in areas that may have an impact on retail investors, also known as "RIC Initiatives."
In a Risk Alert released Oct. 26, the SEC provided observations made by exam staff in exams of more than 50 fund complexes — covering more than 200 funds and/or series of funds — and nearly 100 advisors.
In conducting the exams, the exam division issued deficiency letters to some firms, but not others.
Observations in the risk alert, however, can assist all funds in assessing compliance risks, the agency said.
Exam staff observed funds that had inaccurate, incomplete or omitted disclosures on a variety of advertising and sales literature-related topics, such as:
- Investment strategies and portfolio holdings.
- The differences in investment objective between predecessor and successor funds.
- Inception dates.
- Funds' expenses, contractual expense limitations or expense ratios.
- Average total returns or gross expenses and net expenses.
- Performance information not disclosed with the required legends.
- Awards received for fund performance.
- Weighting of index constituents in the benchmark index.
- Methodologies for calculating the performance of the benchmark index.
- Differences in holdings, risk and volatility between the broad-based and bespoke indexes used for performance comparisons.
- Composition of index used for performance comparisons.
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
