SEC Passes New Rules for Mutual Fund Advertising

WASHINGTON, DC – JULY 17: Sign at the U.S. Securities and Exchange Commission in Washington, DC, on July 17, 2015.

WISCONSIN (CoinChapter.com) — The Securities and Exchange Commission (SEC) passed rules allowing consumers to understand their investments exactly and how much they cost.

The commission SEC said, “… today’s final rules are designed to promote transparent and balanced presentations of fees and expenses in investment company advertisements.”

It requires that investment ads clarify what fees are added on each transaction so shareholders can read quarterly and annual reports without confusion; the reports must be “concise and visually engaging.”

The SEC’s three-phase process to pass new advertising amendments for advertising. Credit: ACA

As of today, investors must sort through extensive literature to understand the most basic information regarding mutual fund fees and performance history.

Meanwhile, new rulings will take effect 60 days after the SEC releases an official publication in the Federal Register. After the publication is released, investment companies have 18 months to prepare shareholder reports that will observe the advertising mandates.

Example of Mutual Fund Advertising Ruling

The SEC presented an advertising sample for investment firms. It must be used for future prospective clients. Example:

“$100,000 invested over 20 years earning 4% yearly would end up being worth $10,000 less with an annual 0.5% fee, compared with 0.25%.”

In a nutshell – ads need to be transparent. Only relevant information may be used in a prospectus; it must be current and not misleading.

Why Did The SEC Decide Now Is The Time?

Current advertising guidelines have remained largely unchanged since 1961. The SEC felt that the original principles governing investors do not fit today because those rules were from a time before the internet.

Furthermore, the commission wanted an update to match the habits and uses of digital media today.

Retirement Planning Going Forward Should Favor Investors

Plan and prepare for your retirement future. Credit: Wall Street Mojo

New amendments will place a high burden of evidence on financial advisors. Meanwhile, professional investment advisers will soon have to show their clients proof to back up historical statistics on any given investment.

According to the Investment Company Institute, mutual funds make up 63% of assets in 401K savings plans, so the multi-trillions of dollars invested are significant.