What New Fee and Disclosure Proposals May Mean for ETFs | ETF Trends

The financial crisis has put the entire industry and all of its various and sundry products – including exchange traded funds (ETFs) – under the microscope. With that, two proposals may affect how certain securities are marketed to you and how they’re priced.

Target-Date Funds. The Securities and Exchange Commission (SEC) recently proposed rule amendments that would require target-date funds to clarify investment goals and change the way they are advertised and marketed. Investors are confused by what such funds offer and how they work, reports Peter Ortiz for Ignites. [SEC Puts ‘Circuit Breakers’ In Place.]

SEC chairman Mary Schapiro says the proposed rules would “enable investors to better assess the anticipated investment glide path and risk profile of a target-date fund.” Additionally, “the rules also would require an asset allocation ‘tag line’ adjacent to a target-date fund’s name in an advertisement.” Critics, though, believe that the SEC may be trying to tell investors what factor to focus on above the many other risk factors in target-date funds.

Other proposed amendments include: A requirement stating that all delivered marketing materials include a prominent table, chart or graph that “clearly depicts the asset allocations among types of investments over the entire life of the fund.” Also, marketing materials need to tell investors to consider their risk tolerance, personal circumstances and overall financial situation.

Expense Ratios. A proposal from the Financial Accounting Standards Board (FASB) could force fund providers to revise the way financial instruments like derivatives and hedging instruments are accounted for, which may consequently increase fund expense ratios, writes Hannah Glover for Ignites. [The Growing Presence of Derivatives: What It Means for ETFs.]