SEC Proposes to Improve the Retail Investor Experience Through Modernized Fund Shareholder Reports and Disclosures

Ballard Spahr LLP

Ballard Spahr LLP

The Securities and Exchange Commission (the SEC) proposed comprehensive modifications to the disclosure framework for mutual funds and exchange-traded funds (ETFs and, collectively with mutual funds, funds). The purpose of the August 5, 2020 proposal is to better serve the needs of retail investors. The proposal is a central component of the SEC’s investor experience initiative and responds to comments the SEC received in response to a 2018 request for comment on retail investors’ experience with fund disclosures.

The proposal, if adopted, would tailor fund disclosures to highlight key information investors need to assess and monitor their fund investments and make informed investment decisions. The SEC proposes significant changes to shareholder reports, fund prospectuses, and advertising.

Below are some important takeaways from the proposal.

Shareholder Reports

  • Under the proposal, a shareholder would receive concise and visually engaging annual and semi-annual reports designed to highlight information that the SEC believes is particularly important for retail shareholders, such as fund expenses, performance, and portfolio holdings.
  • Funds would have the flexibility to make electronic versions of their shareholder reports more user-friendly and interactive.
  • Information currently included in annual and semi-annual reports that is generally less relevant to retail fund shareholders and of more interest to financial professionals and other investors who desire more in-depth information would be filed on a semi-annual basis with the SEC on Form N-CSR. This information would include, for example, the schedule of investments and other financial statement elements. Shareholder reports would contain cover page legends directing investors to websites containing this information.


  • New proposed rule 498B would allow an alternative layered disclosure to keep investors informed about their fund investment and updates to their fund that occur year-over-year. Under new rule 498B, new investors would continue to receive fund prospectuses, but funds would not deliver annual prospectus updates to investors thereafter.
  • The proposed layered disclosure framework would replace the existing fee table in the summary section of the statutory prospectus with a simplified fee summary, move the existing fee table to the statutory prospectus for use by investors seeking additional details about fund fees, and replace certain terms in the current fee table with terms that may be clearer to investors.
  • The proposal would also improve fund prospectus risk disclosure by requiring that funds tailor risk factors to the fund rather than generic risk factor disclosure.

Investment Company Advertising Rule Amendments

  • The proposal would require that presentations of investment company fees and expenses in advertisements and sales literature be consistent with relevant prospectus fee table presentations and be reasonably current.

The public comment period will begin following publication in the Federal Register and remain open for 60 days after publication.

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Ballard Spahr LLP

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