The Securities and Exchange Commission is thinking of new disclosures for exchange traded funds. The current policy requires a product description which includes a brief overview of the ETF, as well as investment strategies and objectives, material risks and potential rewards.

David Hoffman with Investment News reports that due to the evolution of the ETF, some are recommending a two-page document, like that given at the sale of a mutual fund, be delivered at the point of sale of an ETF.  Some believe disclosure should come from ETF providers and does not need to be mandated.  They know that in order to be successful investors want to know what they are buying.

When you buy a mutual fund you are required to receive a prospectus.  The SEC is not considering the requirement of receiving a prospectus, but instead, expanding the product description to include more disclosure about risk potential.  The bottom line is individual investors don’t read the prospectus and they won’t read the product description.  The SEC hopes more disclosures will prevent investors from shooting themselves in the foot…they’ve been concerned about the billions flowing into ETFs.  Investors will always be greedy, they can always buy stocks and options too.  The SEC should spend time getting caught up on the ETF approval process and let these ETFs get to the market.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.