SEC Investment Management Division Director Proposes Enhanced Investment Fund Rules
Commentary by Steven Lofchie
SEC Director of the Division of Investment Management William Birdthistle proposed changes to investment fund rules that would enhance disclosure requirements.
In a speech at the ICI Investments Management Conference, Mr. Birdthistle emphasized that investors must be able to make informed decisions about when to either exit a fund or "exercise their voice to seek change[.]" Mr. Birdthistle said he supported enhancements to the SEC's regulatory regime that would address current "exit and voice" shortcomings, including, among others:
- implementing a uniform fund statement that would detail the fees investors paid through "revenue sharing, soft dollar, and other practices" to provide better financial visibility;
- improving disclosure of fund prospectus costs and expenses to provide better financial visibility; and
- increasing the amount of information that funds must report about proxy votes.
Mr. Birdthistle also addressed ICA Section 36(b), which was established to help guarantee that fund advisers honor their fiduciary duty to the funds they manage. Noting that not a single plaintiff has won a case against fund advisers, Mr. Birdthistle questioned the effectiveness of the provision.
Commentary
While investors clearly care about fund returns and expenses, it is far less obvious that they invest on the basis of an adviser's proxy voting record. To the extent that the SEC imposes disclosure obligations on matters to which investors are indifferent, the SEC is imposing costs that do not benefit investors. The SEC should allow registered investment companies ("RIC") to disclose, or not disclose, their proxy voting history in whatever detail the RIC thought was attractive to investors. That way, investors could decide if the disclosure was meaningful to them and worth the cost.