Compliance August 5, 2020

SEC Proposes Overhaul of Retail Fund Disclosure Framework

The proposed disclosure framework would feature ‘concise and visually engaging shareholder reports,’ according to the federal securities market regulator.

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The U.S. Securities and Exchange Commission (SEC) voted Wednesday morning to propose significant modifications to its mutual fund and exchange-traded fund (ETF) disclosure framework.

The text of the proposal will soon be published in the Federal Register, and the public will have 60 days after the publication to offer feedback and formal comments.

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According to a fact sheet published by the SEC, the proposed disclosure framework would feature “concise and visually engaging shareholder reports that would highlight information that is particularly important for retail investors to assess and monitor their fund investments.”

Other aspects of the proposal would require streamlined reports to shareholders that would include, among other things, fund expenses, performance, illustrations of holdings and material fund changes. The proposal also significantly revises the content of these disclosure reports “to better align disclosures with developments in the markets and investor expectations.”

To that end, the proposal encourages funds to use graphic or text features—such as tables, bullet lists and Q&A formats—to promote effective communication. The SEC proposal, according to Chairman Jay Clayton, promotes “a layered and comprehensive disclosure framework” by continuing to make available online more detailed information that is currently required in shareholder reports.

Additionally, the proposed framework would provide an alternative approach to keeping investors informed about their ongoing fund investments. Instead of receiving both prospectus updates and shareholder reports, existing investors would receive only the streamlined shareholder report. Clayton says this would provide investors with timely and concise information to effectively assess and monitor their fund investments.

The proposal would further amend prospectus disclosure requirements to provide greater clarity and more consistent information regarding fees, expenses and principal risks, according to the fact sheet. To improve fee- and expense-related information more broadly, the proposal would amend investment company advertising rules “to promote more transparent and balanced statements about investment costs.”

The proposed advertising rule amendments would affect all registered investment companies and business development companies, the SEC fact sheet says.

The fact sheet states that the forthcoming proposal would, in part, replace the existing fee table in the summary section of a statutory prospectus with a simplified fee summary. It would also move the existing fee table to the statutory prospectus, for use by investors seeking additional details about fund fees, and it would replace certain terms in the current fee table with terms that may be clearer to investors.

The amendments also would refine current requirements for funds to disclose the “acquired fund fees and expenses” associated with investments in other funds. Specifically, the proposal would permit open-end funds that make limited investments in other funds to disclose the fees and expenses associated with those investments—i.e., “acquired fund fees and expenses”—in a footnote to the fee table and fee summary, rather than as a fee table line item.

Other changes are detailed in more depth in the fact sheet.

Data & Research August 4, 2020

Edward Jones and Age Wave Examine New Retirement Concerns

Financial advisers have a large impact on how confident older workers are during retirement.

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A new study by Edward Jones and Age Wave, “The Four Pillars of the New Retirement,” focuses on overall well-being among retirees and those nearing retirement. According to study findings, 55% of retirees surveyed said they viewed retirement as “a new chapter in life,” while 22% said they believe it is a “time for rest and relaxation.”

Ken Dychtwald, a psychologist/gerontologist and founder and CEO of Age Wave, attributed these positive viewpoints to the growing life expectancy seen around the globe. “Life expectancy is rising, and people are taking notice of that,” he said during a roundtable held by the two groups on July 29, that discussed the new era of retirement post-COVID-19, one that’s focused on the four pillars of health, family, purpose and finances.   

One of the more surprising results of the study was the pandemic’s impact on retirees. According to the findings, 61% of workers say COVID-19 has not impacted their retirement timing. Older age groups are also facing much less financial and emotional disruption than younger workers—39% of those in the Silent Generation say they are coping very well with COVID-19’s impacts, and 33% of Baby Boomers say the same, compared with 26% for Millennials and 21% for Generation Zers. But older adults have experienced multiple life challenges throughout their livelihoods and are now afforded Social Security and Medicare, the report says, which likely contributes to these retirees not feeling as stressed as younger workers, who are likely battling several challenges.

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“If you’re over 65 in this country, you’ve got some safety nets,” Dychtwald said. “The combination of this and being more resilient gives support to the older people.”

Health span—the length of time an individual feels well before a health decline—and health care costs were also examined in the study. Dychtwald noted that American workers experienced, on average, 10 years of decline in illness and health, all while paying high health care costs. “Not only is this very expensive for the country, but it could break the bank for families,” he said.

In fact, in survey findings, Age Wave found the greatest financial worries for retirees and pre-retirees are health care and long-term care costs. Fifty-two percent of retirees have these concerns, while 66% of pre-retirees do. The survey also found that two-thirds of workers who plan on retiring in the next 10 years say they have no idea what their health and long-term costs will be in retirement.

These individuals aren’t looking to their families for financial support either, as 72% say their biggest fear is becoming a burden on their families. However, one in four Americans over the age of 64 have not discussed their end-of-life care preferences with anyone at all.

While the survey found overwhelmingly optimistic opinions on retirement, 31% of new retirees are struggling to find a sense of purpose. Additionally, 89% believe there should be more ways for retirees to use their talents and knowledge for the benefit of communities and society at large.

“People really spend their time in retirement starting to think about purpose,” added Ken Cella, Edward Jones Client Strategies Group principal. “Not just purpose in the sense of understanding it, but, ‘How do I take a few steps to start to do those things that I’m most passionate about that will allow me to leave my legacy?’ It’s a whole personal approach that goes past finances.”

Cella notes that, at Edward Jones, financial professionals focus on goals-based advice. Not financial targets, but what types of other goals older workers hope to achieve during their retirement years. “We’re focusing on helping our financial advisers help their clients, to feel better understood, informed and in control of their future,” he said. “The only way we know how to do that is to understand their goals.”

The study finds retirees place a lot of faith in their financial advisers. Eighty-four percent say their adviser has given them more confidence in retirement, with many interested in receiving retirement-related guidance from a financial professional. Sixty-three percent of retirees and 54% of pre-retirees say they want advice on investment strategies for their retirement savings to withstand market volatility.

“What we’re hearing from our clients, first and foremost, they want to be understood,” said Cella. “But it doesn’t stop there—they want to be informed as well. They want to stay in control as they partner with professionals to help them, so, ultimately, they can feel secure in the choices that they are making, and they can understand that through global pandemics or whatever else comes their way, that it’s going to be OK.”

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