Consolidated Comments on Proposed SEC Mutual Funds Disclosures

Strategic Leadership Across Sectors
Prof. Jeffrey Sonnenfeld
Yale School of Management, 2004

Total responses: 38

Radhika Chakravarti

The SEC disclosures regarding mutual funds could be further simplified for investors that are not very sophisticated. For example, Section D, which deals with payment of compensation to brokers, is not very clear regarding the meaning of "affiliates". Affiliates, should, ideally be defined under Section F. The disclosures, do adequately simplify the fee structure and payments, as well as breakpoint discounts for the average investor.

Frances Forman

It seems that the disclosure documents proposed by the SEC are more than sufficient in addressing the revenue-sharing concern for investors, particularly since the value of the transaction to the broker is listed on the form.

The issue strikes me as similar to that of the pharmaceutical industry. Physicians are (indirectly) paid by big companies to prescribe particular drugs, and those companies that send a sales staff to hospitals and doctors' offices will achieve greater sales than those that do not. The fact that such a relationship exists is far less transparent to the average consumer than mutual fun revenue sharing, which is disclosed in writing. A patient would have to notice a doctor's Lipitor pen.

One might imagine that a doctor is far less likely to recommend a drug that would be bad for a patient's health than a broker would be to suggest a mutual fund that would negatively impact a client's financial future. However, the broker also has a business to run and a reputation to uphold, and would not be interested in the negative attention poorly performing funds would bring. However, the consequences are different and therefore it is important that the value of the transaction to the broker be listed on the reporting documents.

It is then the responsibility of consumers to read the material provided by vendors they select.

Robert LaChance

After reading through the proposed forms I see a few benefits and weaknesses in the forms:


The improved transparency, dollar examples, and industry averages provide a great deal more information than currently available. The format is remarkably easy to read and digest, and the glossary provides a useful resource to dig deeper immediately.

The fact that these documents are given at or before the point of sale is important as well. Since this is when the sometimes misaligned incentives of brokers conflict with consumer interests.


I think that a similar document should be required in all annual reports given by the mutual, not just at the point of sale. This would give consumers a chance to revisit the fee structure of their funds.

Although this is reasonably easy to read, a tutorial (online or printed) highlighting how to read and use these documents with some simple examples, would be priceless for less savvy investors. Also, it may be of value to compare the vast difference in average costs for actively-managed vs. indexed mutuals. The averages may be skewed due the public's favor of active management.

Cristina Brito

The new reports seem like an excellent solution to the disclosure problem. It is unfortunate, but most people do not read prospectus reports. Unfortunately, this paperwork will increase the "transaction costs" (paperwork, time, energy) of purchasing mutual fund shares. Fortunately, most of these costs will be borne by the brokers themselves. Hopefully, the desire to reduce these costs will end up discouraging the practice of compensating brokers for selling favorable funds. Suggestions for improvement: The pro-nouns in the point-of-sale document are unclear. The terms "us" and "we" should be followed by parentheses that define these terms.

Alex Keally

The proposed mutual fund disclosure rules are a great step forward for the mutual fund industry. They add transparency that allows investors to make more informed decisions about who to trust with their money. While investors should be doing all of their own homework on which mutual fund is best for them, many investors do not have the time or knowledge to do thorough research. Therefore, they trust their broker and risk investing in a sub-par fund because their broker's interests are conflicted. The proposed forms are clear, concise, and simple. Best of all they provide industry comparisons at the investor's fingertips. I hope that these forms become law in order to protect some of the less informed investors.

Johannes Buchholz

I think that this is a good suggestion for mutual fund reporting as it

    a) Gives a pretty thorough amount of information about broker payments

    b) It checks potential conflict of interest areas as well as advises the client to ask the appropriate questions so that he/she can make an educated purchase

I believe this is a step in the right direction. In order to make it "bullet proof" the form would have become way too large and there always remain ways that companies could get around it and hide critical information.

Jamie Fergusson

Recent problems with broker disclosure were highlighted in November when Morgan Stanley was charged with failing to tell clients that it gave preferential treatment to certain mutual-fund companies in return for millions of dollars-worth of commissions. This problem is rife throughout the industry with brokers receiving a percentage of annual fund sales in return for a spot on the `preferred list', a process known as `paying for shelf space'. SEC proposals to solve the problem focus on improving the disclosure of this conflict of interest. Point-of-sale documents and after sale confirmation reports will be used to clarify the costs and payments involved in broker-sold funds. To analyze whether these efforts will fix the current problems one must look closely at the process of mutual fund investment and the incentives of those involved. What is the role of the broker? What services do investors seek from them? And how are brokers compensated for their efforts? Despite the availability of a wide array of information, most investors are uninformed and nervous of making decisions without the personal support of a broker. This suggests that the advice of the broker is likely to be taken over written documents, a theory supported by the fact that most of the information the SEC is suggesting be provided is already available in the disclosures of fund prospectuses. So, is increased information a cure against this conflict of interest or just a temporary patch? A parallel could be drawn with the improved disclosure of standardized financial reporting as a protection to investors from accounting fraud. The events of the last few years suggest this has not been a success. That being so, it is likely that regulation forcing further disclosure will not solve the problem. How, therefore, can brokers' incentives be aligned with the needs of investors for sound, impartial investment advice. Regulation is clearly required to prevent preferential payments and to force broker remuneration that is limited to a standardized fee from all mutual-funds. Incentives could then be provided that encourage improved investment by giving brokers performance based bonuses - if the customers investments do well, so do the brokers. Alternatively, improved disclosure at a different level might allow market forces to solve the problem. Brokers could be required to publish the performance of the investments that they have advised, thus increasing competition to provide high quality advice. Several other mechanisms may be possible but until the SEC scrutinizes the drivers of the industry more carefully they will not be successful.

Elizabeth Kyle

These forms disclose information but do not entirely protect investors; and this is sufficient. Investors are responsible for their own best interest, just as mutual funds and brokers are responsible for their own shareholder interests. Fees and business relationships are ethical so long as the average investor understands the implications.

The SEC is obliged to maintain regulations whereby the average investor makes informed decisions. Transparency of potential conflicts of interest is achieved by the disclosure of fee structure, preferential treatment, etc. If the average investor is not qualified to find the link between fees and substandard investing advice, I believe these documents spell it out for them.

In light of recent events, there is temptation for over-regulation and the breakdown of competition among funds, firms and brokers. So long as conflicts of interest are exposed, the industry is responsible for its own regulation.

Oliver Popov

There are a number of possible solutions to controlling these illegal kick-backs.

  1. Ban the practice: Simple, but effective. By making it illegal to receive cash, these brokers are held directly responsible. The repercussions are clear.

  2. Transparency - non-direct approach: Although very obvious, a transparent scheme to revenue sharing (or should we say "kick-back") practices is perhaps part of one possible solution. The result, most hopefully, will be that investors will avoid brokers that display such a clear conflict of interest. Nevertheless, it may be doubtful if oversight and reliability can be guaranteed in the long-run.

Chris Cook

This latest proposal for transaction confirmations will help disclose what fees are being levied, and who is getting the benefits. I do have a few qualms/suggestions though:

  • It's not so clear to me what the "NA" field is for in part D - it seems to me that anything that would fall under "NA" could just as easily be a "NO". I'm for simplifying things as much as possible. I think that traders getting this form might trade several times in a single month, so that getting these forms would be a frequent occurrence. In that case, you don't wan the investor poring over every confirmation with a magnifying glass - you want it easy to glance at and get the relevant information. However, the form does a good job of disclosing what the revenue sharing agreements are, and what all the fees would be.

  • It might be more helpful to require this information before a trade however, either by publishing it in the prospectus with a few stock examples, or by requiring the information to be disclosed prior to the investment (either on the computer screen, over the phone by a broker, or in person with a broker).

Paul Kim

I believe that the proposed forms, the point-of-sale document and after-sale confirmation report, will largely fix the problem. If brokers are required to tell investors about any payments, compensation or other incentives they receive from fund companies, including whether they were paid more to sell a certain fund, then it is likely that brokers will make sure that they do not treat their clients unfairly for the fear of getting caught. After all, a client can walk away from a broker easily and go to another, if he or she perceives that she is being treated unfairly. Also, the SEC proposal to require portfolio managers to report trading in funds they manage is likely to prevent the after-hours trading by preventing a loophole on the incumbent SEC regulation requiring that funds report only the trading by senior employees in individual stocks and not the trading in the mutual fund shares. The new proposal should stamp out the unfair practice of trading after the market's close to the benefit of selected customers, including the mutual fund insiders.

Adam Balukonis

I agree with the view that more transparency will allow market forces to redistribute funds in a more equitable manner. If investors would changes their investment strategy based on whether a broker gets a special commission for selling particular stocks, this change is crucial to helping those investors make that educated decision. My one concern is that the increased scrutiny of commissions and charges obscures the more important issue of whether the investment advisor is fulfilling his or her fiduciary duty to the client by making unbiased recommendations. The new confirmation documents provide good detail on a particular transaction but don't tell clients or regulators whether an investment advisor has a record of biased recommendations or not. In addition, if an investor has several funds and several share classes, there could be a significant amount of increased paperwork that will in itself add costs to investing or at the very least, cause the disclosures to be ignored among the volumes of legalese that accompanies most financial documents. In sum, I think that more is better in the way of disclosure as informed investors can allocate their capital in a fair manner. I would recommend that the investment advisor be assigned a "score" based on their track record of recommending higher fee investments. Clients can use this score to determine for themselves whether the broker has their best interests in mind or his own.

Lauren Leibsohn

Currently, it seems very easy for brokers, and the investment houses that sell mutual fund shares to abuse the consumer in several respects. Obviously the SEC needs to ensure that the consumer has more visibility and access to information that might influence his or her decision to purchase shares in certain mutual funds or not. However, because the industry is so complex, the manner in which this information is relayed to the consumer needs to be clear and understandable. The point of sale reports that outline the fees paid to brokers by the fund companies, and especially those detailing future charges to the customer need to be unambiguous and should be specific as they relate to each individual's potential investment (rather than generalized examples). Furthermore, the SEC needs to ensure that the consumer will be protected from possible changes that the mutual fund industry may make in response to the regulation.

Neha Gupta

To be honest, I feel that ideally revenue sharing should not be allowed between mutual fund companies and brokerage firms. Providing this incentive really places doubt on the entire brokerage industry on whether they are giving sound advice or not. If the practice is allowed, I definitely think it should be disclosed upfront to potential investors in very clear language and perhaps in a way that it stands out from the rest of the document. It is easy to miss specific items as they are buried in a large file. This item is critical enough that perhaps it should be on a separate page, in a separate box, etc. I also think the amount that is given should be disclosed as some investors may not mind the revenue sharing if it is not a large amount and the mutual fund is doing well compared to the S&P 500. The proposal to show industry norms versus the specifics for an individual mutual fund is a good idea but specific numbers should also be provided.

Dominic Ong

In general, I believe in a "buyer-beware" philosophy for the sale of mutual funds provided that all necessary information is provided to the buyer. As they are fulfilling an important function at a lower cost than the mutual fund companies, the payment of sales commissions does not, in my view, constitute an issue per se. My view is that that the proposed reports are easy to understand and would go a long way towards resolving the disclosure of potential conflict of interest issues. To make the disclosure more effective, the SEC should ensure that the mutual fund industry makes this information readily available to all customers - not just potential customers - so that companies such as Morningstar can collate this information and enable consumers to make the right decisions - thereby achieving the best overall outcome.

Jeff Cramer

I feel the greater the disclosure, the better. Attachments 1-3 clearly lay out the various fees involved with owning the mutual fund, and are thus superior to Attachments 4-5. Similar to making decisions about what food is healthy to eat, it is critical that all nutritional value is clearly labeled on food packages. Certain diets and health situations require specific nutrients and food types. Similarly, consumers, depending on age, investment objectives, etc., need to be fully aware of all items impacting their financial health. This includes not only past fund performance of the fund, but also the fees involved in buying, holding, and/or selling the fund. Generalizations about potential conflicts of interest on Attachments 4-5 create information inefficiencies that only make it more difficult for investors to make objective investment decisions. Finally, I hope all of the fee information is clearly laid out in the fund prospectus when the individual is considering investing in the fund, and not just on the confirmation.

Anish Shah

While I believe that the forms are a good first step, I believe that they fail to tell the whole story. It is good that they talk about the broker's compensation, especially versus industry norms. However, brokers are still compensated via gifts (<$100), lavish sales conferences, lunches, etc. Ultimately, the disclosures on the form will force funds to compensate brokers more heavily through these other, unreported compensation methods. Also, with more than 7000 mutual funds in the world, it becomes impossible for brokers to really search for the best fund. Instead, they rely heavily on funds pushed by wholesalers, fund company salesmen; they have a good relationship with. Also, having preferred partners makes it difficult for brokers to learn about funds outside of the partners because non-preferred wholesalers are not even allowed in the broker's office. Ultimately, the SEC needs to focus more on reforming the mutual fund industry so that brokers have more options on how to learn about funds.

Andy Babula

While I do not believe the sample mutual fund reporting documents will completely eliminate the reporting problems regarding special compensation, I do think that they will help minimize the issue. It appears that attachments 2 and 3 would be especially helpful in increasing transparency for uneducated investors. While it is true that investors should be familiar with the situation if they are placing their money with them, mutual funds have arisen as the "safe" way to invest aggressively. Having such information as clearly detailed back end fees and whether or not the mutual fund is receiving special kick-backs for pushing various stocks will at least make investors aware that such practices exist. The secondary advantage of these documents, even if all investors do not increase their awareness of current practices in mutual funds, is the deterrence factor for mutual fund companies. Funds, by being forced to report their practices, and if even a small number of people are deterred from investing with that fund, the fund will be more aware of the implications of these practices on their business.

Meagen Gould

Full disclosure is important to the credibility of firms. I believe any measure to get closer to that position is important and valid. These forms for the broker are a good step forward. Putting your response on paper is key to compliance. Not only is it traceable, but also something you can be held accountable for. Studies in accountability show that there is an increase in compliance and action if a person says something publicly and that the response is even stronger if they write it. Foreign countries have used these tactics on prisoners of war and they were successful in gaining submission and action. As far as the form, I think it is important for section B and C to state what you pay and what your broker will receive. Full disclosure is fair to everyone and this is a good step forward to raise awareness.

Jessica Matsumori

Overall, I believe the recent SEC-proposed form for mutual fund sales is a fine idea and a step in the right direction. In my opinion, any additional information an investor can receive prior to a purchase is good. The standardized form makes it easy for the average investor to find and understand the information. And if he is concerned about the level of incentive the broker is receiving for the sale, the standardized form also makes it easy to compare results across firms - hopefully leading ultimately to a better-informed investing public.

However, I am uncertain that the benefits gleaned from the implementation of this form will outweigh the costs of increased governmental regulation. In addition, I am wary that the mutual funds and brokers will simply find a way to reclassify or revamp their revenue-sharing practices such that the information will not be captured on the form, rendering it useless. (For example, giving a discount to the broker rather than paying a direct fee) Additionally, most individual investors I know are well aware that broker-dealers are given incentives to promote certain funds. "Slotting fees" are a given. Personally, I am more concerned about the possibility of being overcharged on commissions or missing out on breakpoint discounts and would appreciate the broker providing or posting information on the levels of discounts he provides.

Given the above arguments, though I do not believe that the proposed form and changes will ultimately solve the problems at hand, I would still endorse implementation until a better solution can be found - especially since the status quo is not working.

Meghan O'Keefe

I think that the disclosure statements that the SEC is proposing with accomplish the stated purpose of giving investors more information about who profits from a trade, how they profit, and what incentives exist due to the existing structure. The statements are clear and easy to understand. If this is the only goal of requiring brokers to issue the statements, then I think that goal will be met. However, if the goal is to change how the fund companies and the brokers interact, then I'm not sure it will be met. I think the two sides will simply find another way to share revenue that is not covered in these statements. I also think that the brokers and the fund companies are likely to pass the significant cost of producing these documents on to the investors in the form of higher transaction fees, etc. Adding to the mountain of paper that investors already get (and usually disregard) from their brokers/fund companies is not going to address the underlying problem, which is a revenue model that rewards this interaction.

David Griest

The proposed reports are a step in the right direction but are not enough by themselves. These reports appear to do a good job providing detailed information regarding fee agreements between brokers and mutual funds for a specific purchase. Without a broader perspective to compare the different fee structures among the brokers and funds, however, much of the relevance is lost. The SEC needs to provide a resource that allows investors to easily evaluate and compare all of the various fee structures in place. Only when the data comparing firms is presented side-by-side will investors be able to see the forest from the trees. The SEC's website is probably the best tool for this purpose since the information will need to be continually updated and hosted by an unbiased source.

Carter Davis

After doing the reading, and the little bit I know from personal investing, the problem with mutual funds seems to be twofold. There is the obvious problem of mutual funds being a bit unethical in their selling practices. But there is the parallel problem of many investors not really being aware of the issues, or not really caring. Personally, I am aware of the different pricing policies, but I have never felt it was really worth it to pay attention to these. In my mind, the hundred dollars or so that I may lose by not properly looking into pricing of mutual funds is dwarfed by potential gains or losses. This is not a good reason to ignore fees, etc., but the reality of the situation is that I do. And if I do, I'm guessing many other investors do. I think that publicizing these deceptive tactics will help raise people's awareness, which is good. But I still question whether many personal investors will take the time to look over these summary pricing sheets, which happen to just look like another administrative issuance. Many investors are likely to still choose mutual funds based on the historical return, and not care as much about the fee structure.

But requiring these forms to be issued with mutual fund purchases is a step in the right direction.

Nisha Batra

The recent regulation calls for mutual funds to clearly and thoroughly disclose all pertinent information regarding transaction dealings and holdings to the funds' investors. The question now is how effective, if any, will this regulation be? In examining the two proposed documents prepared by the SEC, it is unclear as to how these regulations will play out. The proposed point-of-sale document clearly states any fees or potential conflicts of interest between the funds and the broker-dealer, while the proposed confirmation document is a thorough description of the transaction, stating any compensation or fees the brokerage might be receiving from the fund. Both proposed documents are concise, simple, and attack the issues in a language that should be comprehensible to the average investor. However, considering that there are over 90 million mutual fund investors in the U.S., many of whom are clueless regarding the financial lingo or possess even an inclination to research the details of their fund investments, it is unlikely that these documents will fully serve their purpose. However, that being said, the SEC has moved in the right direction in raising flags for mutual funds - the idea of disclosure alone, whether it is studied in detail by the investor, should be enough of a reason for mutual funds to second-guess any incentives or compensation they push to their brokers. Rather, we hope that rather than trying to beat the system, the mutual funds will instead concentrate on making their funds strong performers, and allowing their numbers to speak for themselves. Finally, a note to the investing population - investors should also be liable for their investments. Though it is not fair for a fund to hide transaction information, it is also just as insane for investors to not investigate where there money is flowing. Hopefully, such regulation should protect the average not-so-astute investor, and encourage mutual funds to be less deceptive in their dealings with broker-dealers.

Jeryn Jacob

I think the combination of point of sale and confirmation documents will go a long way in addressing the critical issues facing the US mutual fund industry today. I believe that the investor now has access to lucid and accurate information about the fee and cost structure involved in the transaction (thanks to the definitions section at the end) and can easily make a determination about whether it seems reasonable compared to industry norms. I am also optimistic that the disclosure section about revenue sharing/other compensation received by the broker from the fund would help clarify to investors the incentives of the broker who is recommending the fund. Perhaps, the very fact that a disclosure of this nature needs to be made to the investor may prove to be a deterrent to brokers reliance on such forms of compensation.

I have the following suggestions:

  • For the fees & loads section, I would recommend that a hypothetical table be included in the document displaying how these fees/loads impact your expected earnings from the fund. (Example: A singe period return model using last year's return as the base number and illustrating all fees/loads as deductions from base earnings and displaying a net expected earnings figure) may help consumers better understand the numbers. In the current proposal, simply stating that the fees translate to x% of your investment does not translate it in terms of expected returns/percentages. Maybe its just a question of doing the math, but why assume that the consumer is able to do it?

  • Under the current proposal, the broker declares $$ amount of commissions/incentives received from the fund and how it compares to the rest of the industry as a percentage of investment made. In my view, this declaration does not adequately address the issue of broker conflict of interest/incentives. Merely quoting the absolute value of dollar commissions and indexing it to the investment made does not highlight the extent to which these commissions can affect the broker's recommendations. I suggest that the broker make a disclosure about how the commission for a recommended fund compares with the average commission received from all funds under his recommendation list. ( So, if fund A pays the broker $322 for an 8000 dollar investment (4%), the disclosure would include the dollar amount and a ratio of commission for this fund by average commission for all funds i.e. 4%/x%.

Saulat Sultan

The Securities and Exchange Commission (SEC) is proposing measures to enhance the level of disclosure brokers make to investors related to various costs/fees as well as potential conflicts of interest. My personal opinion is that the solution is well intended but may not lead to a long-term solution. Following are the several reasons I am critical of SEC's approach:

  • As the disclosure levels increase, so does the level of paperwork that the brokers need to do and the time it takes for an investor to read it. There is an efficiency cost associated with this measure. For instance, calculating industry averages for load fees, etc. will be time-taking and may also lead to other forms of distortion.

  • The documents containing the disclosure level will soon become routine and just as people don't read credit card agreements before applying for one, they will not read the disclosures thoroughly.

  • The infighting within the SEC is not surprising because I find nothing wrong with the notion of funds paying brokers a fee for touting their products. My background is retail and I know that giving commissions to middlemen is key to business success. This is why Walmart/Walgreens place one product on their shelves and not the other. If it is the level of disclosure that is the issue, one should rest assured that the problem lays not in the wording on the agreements/contracts but in the lack of investors' due diligence.

Based on this discussion, I believe the most valuable step SEC can take is to set up mechanisms to better educate investors. Current proposals focus too much on "getting the text right" and too little on "buyers' due diligence." Industry practices evolve over a number of years and are accepted modes of behavior in all industries; the mutual fund industry is no different. The increased level of disclosure will be useful only if enough investors actually use it in their decision making process.

Seth Dunn

We have been asked to comment whether the recent SEC proposals regarding disclosure of revenue-sharing and 12b-1 fees will "fix the disclosure problem." It is first necessary to define the disclosure problem: the inadequacy (from the perspective of investors) of 1970s-era disclosure requirements in light of new trading and brokerage practices. Based on the assigned news clips and the proposed SEC form, the changes under consideration do appear to move mutual-fund disclosure in the direction of being, as SEC Director Annette Nazareth puts it, "more meaningful to investors."

I agree with Commissioner Cynthia Glassman on the need to assess the costs and benefits of these and other changes, such as increasing board independence. However, I also believe that such assessment not be used as a tactic to delay long-overdue reforms or become a tool of bipartisan stalemates that have too often handicapped the SEC's effectiveness.

Finally, I am concerned that the changes to reporting of 12-b fees are not sufficiently "meaningful" to investors. The return on investment is the most important benchmark to an investor, yet the fact that such fees decrease a fund's return on investment is relegated to the fine print of the form. It seems to me that net asset value will continue to be inflated, allowing fund managers to continue to report higher "raw" returns but making it difficult for investors to compare funds whose relative standing may vary due to different 12-b fees.

Investors should see the NAV-(12-b cost) immediately. This will enable them to compare the ROIs of funds directly-12-b fees included. If these more accurate ROIs cannot be easily determined, the SEC will set itself up for future criticism regarding mutual-fund disclosure gaps.

Francisco Montecinos

The SEC proposal is a good initiative to mitigate the "disclosure problem," and consequently the conflict of interest between broker's recommendations and the funds' "shelf space" payments. However, I believe the proposal could be improved further. Specifically, to disclose the amount paid by funds prior to the purchase. If mutual funds or brokers follow Merrill Lynch's approach, where all funds have to pay to be considered by the brokers, the pre-sale form would not provide enough information. Since all funds would have to pay the broker, the difference would not be the presence of payment, rather the amount.

Another issue that is not addressed by this proposal is the potential for the fund manager to have to direct trades to a particular broker as a form of reward. It is possible that this problem cannot and should not be addressed by this proposal. The SEC, however, should definitely consider this practice as a potential payment for brokers that may misalign the investors' and brokers' interests.

Tanya Sukhu

The mutual fund disclosure problem points to the continued conflicts of interest among members of the financial community. The major issue with the current lack of disclosure is that revenue sharing arrangements give brokers incentives to recommend particular funds to their investors, at their expense. Inadvertently, these uninformed investors select fund based on their broker's recommendation and must pay more for these funds. Investors need to be made aware of these relationships and fees so they can make informed decisions before purchasing mutual funds. The SEC forms are meant to help make the relationships and extra financial compensation between mutual fund brokers and the mutual fund companies more transparent. The extra transparency and disclosure should provide investors with the option to buy brokerage recommended mutual funds that carry extra sales fees or select other mutual funds. The point-of-sale form clearly details the extra fees associated with the selected mutual fund class and indicates the potential conflicts of interest between the brokerage and the mutual fund company. However, the information on the confirmation form is more detailed and may be more useful to investors because this is before they purchase the fund. Investors may also want to know what other funds in that class are charging and what other funds in that class are available to them. The confirmation forms help clarify the specific extra fees investors would pay if they buy mutual funds that incur extra sales loads or commissions. The forms also distinguish between front-end sales load funds and back-end sales load funds and compare the fees to industry norms. While this comparison is helpful, it may be more meaningful if these comparisons are provided on the point of sale forms in order for the investor to purchase other mutual funds if they don't want to pay the fees. Overall the forms provide clear and detailed explanations of the relationship between the broker and the mutual fund company and should help investors make more informed decisions and are ultimately better than the current vague disclosure.

Suzanne Ross

I find the forms to be relatively thorough, concise, and easy to read. Providing industry norm information is useful in that it offers a relevant context by which people can assess the information that is provided. The definitions also assist in making the form easier to understand and hence more relevant. My biggest question is whether this disclosure is actually going to have any impact on decisions or behavior. My intuition is that sophisticated investors were probably well aware of this practice and knew to ask about revenue sharing and incentives if they were concerned or to ensure that practices fell within industry norms. I would think that the less sophisticated investors are not likely to take the time to read or understand these forms and certainly won't use them to change or alter their decisions. While I generally believe that transparency and disclosure is a good thing, I don't believe that these forms will change the choices of sophisticated or unsophisticated investors, nor do I believe that they will alter the behavior of mutual funds and broker dealers. If the problem is that the practice of revenue sharing and incentives is inappropriate (which is a subjective decision in itself), then the regulation should really address the practice rather than just disclosing it.

Dean Moore

My belief is that the SEC must follow through with requiring a full disclosure of specific revenue sharing arrangements held between brokerage firms and mutual funds. Even if the majority of individual investors disregard this information during their mutual fund selection process, it is important that all potential investors have this information at their disposal. The simple fact that much of this information has only been available in vague and generalized terms further supports the theory that there are significant conflicts of interest between investors and those financial service institutions that are supposed to serve them.

While I do not expect the proposed SEC forms to alleviate the conflict of interest present within the industry, I do expect that it will allow individual investors to become fully aware of what interests are at stake - and ultimately, allow them to make better investment decisions. Furthermore, this form of full disclosure is a necessary component of a liquid and efficient financial market system.

Danny Swancey

I think the documents are great.  I have been investing for years and did not really understand until recently the relationships and agreements between financial advisors and the mutual fund industry.  I have friend who has worked for both Merrill Lynch and Legg Mason and have witnessed the potential conflicts of interest that these relationships create.  I understand that not all investors will all of the sudden be experts and understand the in's and out's of this complicated industry, even with the new forms.  I guess my feeling is that the new forms are by no means a fool-proof 100% solution to the problem and I'm sure that is not their intent.  What I do believe is that these documents will put many brokerages and financial planners on alert and make deceptive practices much more difficult.  Those who want to cheat and deceive will certainly always find a way, but hopefully the implementation of the new forms will lessen the amount of unscrupulous activity and make it much easier to punish/prosecute those who are dishonest.

Marina Malyshkina

I agree with the rationale behind the SEC's suggestion to bring forth new rules requesting disclosure of the potential broker-dealer's conflict of interests between mutual funds and brokerage firms. I think that, in general,  the more disclosure the better and is benefitial in the long run for both  investors and financial services industry, although, undoubtedly, mutual fund managers will be coming up with various reasons why that is not true. However, it is not clear from the enclosed form whether disclosure will relate only to brokerage firms or also to financial advisors. Especially worrying is the recent trend to sell in-house financial plans/mutual funds by in-house financial advisors (e.g. American Express case) to make the most money for the company and not necessarily in the best interest of investors - with that in mind, I believe that relations with the in-house intermediaries should receive a more detailed disclosure. Overall, the suggested rules are benefitial although the problem they address is only a tip of the iceberg in the mutual fund industry.

Lily Horng

I commend the SEC's efforts to provide more clear disclosure statements to mutual fund investors. The sample confirmation statements go a long way toward demystifying and clarifying the different fee structures involved in mutual fund transactions. However, even when information about revenue sharing and portfolio brokerage commissions is given, it is unclear how the individual investor would act on this information and benefit. This is especially true if these practices are standard for the industry. Where would the investor place his/her money if all companies employ these practices? To improve the clarity of the form, sections B and C of the confirmation statement could be more clearly divided and there should be some explanation of what companies or funds are used to compute industry norms.

Ashley Gibbs

The document provides sufficient disclosure by calling explicit attention to potential conflicts of interest. In addition, it informs investors that there are many available mutual funds a brokerage firm may not recommend as a result of the level of compensation received from a mutual fund to the brokerage firm.

However, there is the question of whether or not the document alone is sufficient disclosure. Investors receive substantial information about funds regarding minor changes related to the funds. It is possible that investors may not be alerted to the fact that this additional information is extremely relevant to the funds they choose and questions they pose to the broker. An additional measure may be necessary to underscore the importance of the disclosure document such as requiring brokers to reference the disclosure document when discussing or recommending mutual fund options.

Leo Leibovitch

I believe the disclosure is certainly a step in the right direction. However, by itself, it does not seem like a sufficient measure to alleviate all of the persisting problems with the funds. For instance, the fact that the broker relationship is disclosed still does not prevent one from pushing or suggesting a particular fund; regardless of the fact that the disclosure is there, a customer still can be influenced by broker preferences.

Alex LePage

The document is sufficient in disclosing the associated fees and payments implicit in an individual investor's purchase into a fund. It discloses information adequately and simply.

The document will probably serve the sophisticated investor well. A concern is that this information, although succinct, is long and potentially confusing for the average investor (those who contribute to funds through their employer). What is needed in addition to this is a requirement that brokers disclose the various funds' associated fees in a way that can be easily compared. Without this, the average investor lacks full information on the investment options that she has. To state the "industry norms" percentages is good, to compare the various funds specifically would be better.

Presumably, brokers and/or funds will respond to this new requirement by providing value-added information to the investor that will benchmark returns that will include margins with and without these associated fees. This is the only way that an individual investor will have full and clear information on the competitiveness of the fees involved. Perhaps the SEC should go one step further with its requirement, which will go along way in providing simple and effective disclosure to the individual investors.

Sage M. Friedman

The proposed disclosure format appears to be quite effective in explaining the fee structures of any given mutual fund. It would be a mistake to not provide comparison data to the investor before the purchase, however, as it stands now, industry averages and norms are only available on the sale confirmation documents. Similarly, the point of sale document should also include the total of the investment minus the fees, as done in the confirmation documents. Regardless of the information contained, the effectiveness of these documents resides also in the relationship between the investor and their broker and how they are presented and explained to the investor. The lingering questions are about enforcement. What will the penalties be for misleading investors? What form will enforcement take? How will these disclosure requirements distort the marketing behavior of brokers and mutual funds? I believe that there must be space within the form for comment on any new types of relationship could develop between a broker-dealer and a mutual fund given that SEC rules are not rewritten constantly making allowance for changes over the next interval seems critical.

Gregg Sypeck

The proposed SEC confirmation form is an excellent step in the right direction. The form is very clear and it should be easy, even for unsophisticated investors, to comprehend. The comparisons to industry norms are an excellent way of clearly and meaningfully providing information. The only problem with these comparisons, however, is that there may exist an incentive for collusion in an attempt to drive the industry ranges and medians up, thus resulting in a different problem. Furthermore, although the form is clear and informative, it is unlikely that investors will actually take the time to read it. Therefore, technically speaking, it appears that the form is adequate in terms of disclosure, but if the SEC is concerned with protecting the investor, this is only a partial solution. This form, coupled with a comprehensive awareness and education campaign, would be a better solution. Ultimately, the investor must be held personally responsible, but if the SEC fails to take adequate steps to inform investors of the information that will soon become available, the new form may add little value.