SEC Considers Annual Fund-Fee Disclosure

Mutual fund investors might get a better idea of how much fund companies are charging them in management fees under a proposal presented to the Securities and Exchange Commission.

Funds should disclose actual fees paid by investors in semiannual and annual shareholder reports, according to recommendations in a report by the SEC’s investment management division.

Currently, funds tell investors only about fees they are likely to incur, and the amounts are estimates based on hypothetical returns, said congressional proponents of greater disclosure. Also, funds disclose the information in prospectuses rather than in semiannual reports or quarterly statements to investors.

Although funds would have to report fees based on actual performance under the SEC staff plan, they could assume each person’s initial investment was $10,000 rather than plugging in the actual initial payment.

Also, funds would have to disclose the fees only in semiannual and annual reports rather than in quarterly account statements. That feature of the SEC staff report drew criticism from at least one investor group.

“This is a definite improvement over current fee disclosure, which is basically leaving you in the dark,” said Mercer Bullard, founder of Fund Democracy, a shareholder advocacy group.

However, Bullard said, it’s a “big mistake” to have funds disclose fees in annual reports rather than quarterly statements. “People don’t look at their annual reports” to see how their accounts are doing, said Bullard, a former SEC assistant director for investment management. “People look at their quarterly statements.”