Public comment over the SEC's proposed regulations on target-date fund advertising and marketing is shaping up as a debate of too much vs. too little.
Major providers say they fear parts of the proposal will require information that is too unwieldy or confusing for investors to make informed decisions.
“Vanguard wholeheartedly supports those aspects of the commission's proposal that serve to clarify what happens at the target date and thereafter,” F. William McNabb, chairman and chief executive of Vanguard Group Inc., Malvern, Pa., said in written comments to the Securities and Exchange Commission. “We urge the commission, however, to guard against disclosure overload in mutual fund marketing materials which could lead to investor confusion and, in fact, lessen an investor's understanding of the benefits of target-date funds.”
The SEC proposal that investors consider multiple factors in choosing target-date funds is “too vague and generic to be helpful to the general investor,” said Mr. McNabb. “A long litany of "buyer beware' disclosure for any product may give investors undue alarm and cause them to shy away from that product.”
Meanwhile, several organizations, including those representing state regulators and consumers, said the SEC proposals fall short of adequately educating investors about target-date fund strategies and investment styles.
“The amendments represent important first steps in increasing disclosures to target-date fund investors,” wrote Tina G. Stavrou, assistant general counsel of the North American Securities Administrators Association, Washington. “(However), NASAA believes the amendments to the rules do not go far enough, and thus remain open to industry abuse and investor confusion.”
John Heine, a spokesman for the SEC, said the agency doesn't have a timetable for issuing a final set of rules. “The SEC will act as expeditiously as possible,” he said.
After digesting 101 pages of proposed SEC rules plus accompanying agency comments, some prominent providers issued detailed criticism that could be called a “yes, but” response.
Yes, the proposed regulations should help consumers, and, yes, some of the proposals produce greater clarity, according to their comments. But some recommendations relating to asset allocation, risk and reward and additions to SEC antifraud rules are too cumbersome, unclear or intrusive, they argue.
The SEC proposals fall into several broad categories:
c Requiring marketing materials to disclose asset allocations of the funds among several types of investments — equities, fixed income and cash;
c Including a statement that tells participants to consider “risk tolerance, personal circumstances and complete financial situation,” and makes clear that a target-date fund is not a guaranteed investment;
c Requiring print or electronically delivered marketing materials to include a “prominent” table, chart or graph that “clearly depicts the asset allocations among types of investment over the entire life of the fund.”
c Revising the SEC's Securities Act Rule 156 anti-fraud regulations on misleading marketing claims to say that improper marketing claims can be defined as placing emphasis on a single factor such as age or tax bracket “as the basis for determining that an investment is appropriate.”
The SEC proposal also warns about marketing materials that say investing in target-date funds or any securities is “a simple investment plan or (one that) requires little or no monitoring.”