Tags: fund | disclosures

SEC: Target-Date Funds Way Off Target, Will Investigate

Monday, 04 May 2009 03:01 PM

WASHINGTON -- U.S. securities regulators are examining disclosures by 'target-date funds,' which have become a popular vehicle for investors saving for retirement or college, the chairman of the Securities and Exchange Commission said Monday.

The funds, whose mix of assets typically becomes more conservative as the fund nears its target date, have "produced some troubling investment results," SEC Chairman Mary Schapiro told the Mutual Fund Directors Forum conference in Washington.

According to Schapiro, the average loss in 2008 among 31 target-date funds with a 2010 retirement date was almost 25 percent.

"I can assure you that SEC staff is closely reviewing target date funds' disclosure about their glide paths (shift in asset allocation) and asset allocations," she said. "The staff is examining whether the same target date funds underlie both retirement and college savings plans."

Schapiro urged directors of target-date funds to review their asset allocations and investments to ensure they are consistent with investor expectations.

"Among other issues, we will consider whether the use of a particular target date in a fund's name may be misleading or confusing to investors and whether there are additional controls the SEC should impose to govern the use of a target date in a fund's name," Schapiro said.

The Investment Company Institute, the mutual fund industry trade group, had no immediate comment on Schapiro's remarks.


Schapiro also said reform of mutual funds' 12b-1 fees, also known as distribution fees, is an issue that deserves and will receive the SEC's attention.

Since 2007, the SEC has been reviewing the fees, which are charged by mutual funds for marketing and fund promotion.

Critics have said the fees no longer serve their original purpose to stimulate fund growth, promote a more stable fund asset base and help cut shareholder expenses.

Schapiro said she was "committed to a meaningful and open-minded review" of the fees, though said the review is a lesser priority than issues related to the current economic crisis.

Later when asked about her views on whether the chairman of a mutual fund should be independent of fund portfolio managers, Schapiro said she did not know the answer.

"This is something that will be on a somewhat longer timetable," she said.

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