What’s in a Name?
In his comment to the SEC regarding its proposed rules for target-date fund disclosures, Castille said BlackRock believes no significant change to the naming convention for target-date funds is needed.
Castille said the current use of a date is a simple approach that is designed to assist investors in selecting the fund most appropriate for them. “We are concerned that the Commission's proposal to add asset allocation information to the name of the fund will confuse rather than assist investors,” he wrote.
As currently proposed, the funds would be required to indicate a short-hand asset allocation as of the target year. BlackRock believes many investors will mistake this for current allocations or will simply not understand the short-hand. In addition, Castille said this short-hand is not sufficient to describe the risks of various asset classes or sub-asset classes. For example, an actively managed international small cap fund would be considered an "equity" fund as would a U.S. large cap index fund, yet these two funds would have very different risk profiles.
Goebel noted that for marketing materials describing a number of funds in a given complex's target date lineup, target-date asset allocation disclosure will be the same for each fund that has the same glide path, and would not assist investors in determining which fund is an appropriate investment. He said Fidelity also believes the disclosure would be of limited use to investors comparing target-date funds offered by multiple providers.
Pavlenko Lutton, said Morningstar is also concerned that the proposed naming change may place too much emphasis on one moment and give the mistaken impression to investors that a target-date fund’s asset allocation won’t shift after the retirement date. Morningstar suggests that the Commission strike this proposed requirement.
Some commenters also expressed concern that proposed rule 156 would provide that a statement that an investment in a fund is appropriate could be misleading if it places emphasis on a single factor (such as age) or because of representations that the fund is a simple investment plan or requires little or no monitoring. Goebel noted that target-date funds typically are designed as single fund retirement solutions, and the most important single selection criteria for most investors is the investor's intended retirement date. He requested that the SEC consider revising the proposed amendments to provide that such statements may be misleading only if they do not include additional risk disclosure.
Edward Ferrigno Vice President, Washington Affairs, Profit Sharing/401(k) Council of America, agreed with concerns about Rule 156 changes, as did McMillan of the ICI.