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Statement on Proposal to Improve Information Available to Fund Investors

Aug. 5, 2020

Thank you to Director [Dalia] Blass and her excellent team in the Division of Investment Management for your several years of work developing today’s proposal to improve the information available to fund investors. Thanks also to the team in our Division of Economic and Risk Analysis, who worked hard to evaluate the costs and benefits of the many variables in this proposal, as well as all of the other SEC staff, past and present, who worked on this project.

The recommendation before us is the latest step in an enormous effort to holistically evaluate existing disclosure rules to assess how they are meeting the needs of Main Street investors.[1] The proposed rule changes reflect feedback from investors as well as research on retail investor preferences and an acknowledgement of technological advancements that have developed since our existing disclosure rules were put in place. There is a lot for the public to comment on in the proposal, and I am very interested to review the feedback.

One area in which I am interested is performance reporting—particularly the existing requirement that funds report performance by reference to a “broad-based securities index.” [2] The recommendation proposes to clarify that the scope of this term is more specific than some currently understand it to be. This may well shorten the list of index benchmarks that funds can use in their reporting.

While I understand that comparing fund performance to an index is a common way to evaluate performance, this methodology has some drawbacks. First, it does not come cheap. Fund shareholders can pay significant licensing fees for the fund to obtain rights to reference an index in its disclosures. Notably, this regulatory requirement applies to all funds—not merely funds that purport to track an index. So, fund shareholders may be paying these fees regardless of the funds in which they invest. Perhaps these shareholders would not mind paying this extra cost if they find such performance measures helpful. But, I believe it is important that they realize this information comes at a cost. Second, I worry about entrenching the market power of the major index providers. The proposal’s clarification to “broad-based securities index” will likely lead to more funds looking to use their products as performance benchmarks. Yet, we do not regulate index methodologies or have direct insight into index pricing. For those reasons, I hesitate to mandate their use through SEC rulemakings.

I hope commenters will provide feedback on the questions asked in the proposal about other ways to gauge a fund’s performance. I also hope commenters will share information about the state of competitive forces in the indexing market.[3] If such forces are weak in certain areas, is that because particular private market forces are at play, or because SEC (or other) rules have generated that result?

Thank you again to the staff who worked on this important undertaking. I am happy to support the proposal and look forward to receiving public comment on its many questions.

[1] See also Request for Comment on Fund Retail Investor Experience and Disclosure, Rel. No. 34-83376 (June 5, 2018),

[2] See Section II.B.2.C(ii) of Tailored Shareholder Reports, Treatment of Annual Prospectus Updates for Existing Investors, and Improved Fee and Risk Disclosure for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements, Rel. No. 33-10814 (Aug, 5, 2020) (“Shareholder Reports Proposal”)

[3] Id. at Section III.F.

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