Securities Industry Association Mutual-Fund Fee Disclosure Clarity is the cornerstone of trust between investors and their financial advisers. The Securities Industry Association is committed to clarity through full and unambiguous disclosure, enhanced understanding of the securities markets, and educating investors about mutual-fund fees. Research has shown that information about mutual-fund fees can be improved, particularly at the point of sale. Fee information is complicated, sometimes described in industry jargon, and sometimes inconsistent across fund managers and distributors. Investors find the mutual-fund prospectus too complicated or confusing to tell them what they want to know and rely on their financial adviser to understand these fees. Investors need mutual-fund fees to be clear, simple, and standardized for comparison purposes and be available at the point of sale in both verbal and hard copy formats. According to July 2004 research conducted by Wirthlin Worldwide for SIA, investors feel that information about mutual-fund fees at the point of sale is confusing, difficult to find, and not consistent across fund managers and distributors. Furthermore, SEC market research conducted in April 2004 to determine investor satisfaction with both current point-of-sale and disclosure rules and those the agency proposed in February 2004 found widespread uncertainty about fees and a need to clarify fee disclosure, both at point of sale and across all funds. SIA focus groups found that the factors investors deem most important when considering a mutual-fund investment are expected future returns, past performance, the adviser’s recommendation, and the fund manager. Risks, fees, and costs followed these factors. Improving Clarity For Mutual-Fund Transactions ______________________________ SIA has outlined a set of principles to clarify mutual-fund point-of-sale information and disclosure: ■ Investors should be clearly informed of a mutual fund’s investment objectives, past performance, and risk factors. ■ Investors should be clearly informed of the management, sales, distribution, transaction, and administrative fees involved in the purchase, ownership, and sale of mutual funds, including breakpoints and share-class alternatives. ■ Investors should be clearly informed if incentive-compensation arrangements exist that might potentially influence a broker-dealer or other adviser’s recommendations. Continued Securities Industry Association Disclosure Of Fees ____________________________________________________ Investors should have the opportunity to review information about a mutual-fund investment before the point of sale. Regardless of how this information is presented to the investor, SIA is committed to certain disclosure principles: ■ Disclosure should be in plain English and avoid technical jargon understood only by professionals and regulators. ■ Disclosure should be consistent and standardized to enable broker-dealers, other advisers, and investors to compare information from fund to fund. ■ Disclosure about management, sales, and distribution fees should be clear, simple, and easily accessible by investors. ■ Pre-decision information should be based on a standardized amount (such as fees per $1,000) to facilitate comparison among funds. ■ Post-decision information (confirmation) should be based on the actual transaction amount – to provide accurate net investment value and appropriate breakpoint discount. While the wide range of mutual funds currently available offer investors a rich selection of investment choices and represent a variety of investment-management techniques and strategies, the diversity of products and services results in complex data-management challenges for each market participant – fund companies, broker-dealers, other advisers, and investors themselves. SIA believes that the industry can and should do more to clarify information about mutual-fund investing and feels it is critical to promote clear, complete, and accurate disclosure of investment objectives, past performance, risks, and fee characteristics of mutual funds to all investors.