December 2, 2018
OVERALL INVESTOR EXPERIENCE
1. How do you pick funds? What information do you want to know when you make an investment in a fund? What publications or websites do you review? What tools, online or otherwise, do you use? Do you look at the SECs website?
I select funds myself, based on research about what the fund is invested in, how it approaches security selection and trading, expenses, management experience, etc. For this information I start with Morningstar (premium), the fund's website (for fact sheets, current SEC filings), Lipper's site for its fund ratings, and sometimes the SEC site (for historical filings).
I use Morningstar's premium fund screener to identify candidate funds and its X-ray tool to see how a fund or funds would fit within my portfolio.
2. Do you read current fund disclosure documents? Do you understand them? Is there information you do not receive from the fund that you would like to get?
I get disclosure documents electronically. I do understand them. I would like better, more transparent information about trading commission expenses.
3. How well do current fund disclosures (such as a summary prospectus, prospectus, or shareholder report) help you pick an investment? Is it easy to compare different funds? Are there technology-based tools that could make fund comparisons easier? What helpful features do those tools have?
I find the summary prospectuses fairly useless, and always go straight to the prospectus. As described in #1, I use Morningstar tools to select funds. A comparison tool superior to what they offer would be nice, to be able to compare not only performance and costs, but to see a breakdown of holdings (like Morningstar X-ray) of multiple funds side by side. Something that would facilitate comparing the experience of managers at different funds would also help.
4. Do you use the advice of a financial professional? Does a financial professional's help affect whether and how you use fund disclosures?
I am a do it yourself (DIY) investor.
DELIVERY
5. How do you prefer to receive communications about fund investments? For example, do you prefer mail delivery, email, website availability, mobile applications, or a combination?
Email for notifications, brief communications website availability for everything, but especially SEC filings and fund fact sheets. Prefer to avoid hard copy (though would like to still be able to request a copy in rare instances).
6. What types of fund information do you prefer to access electronically? What types of fund information do you prefer to receive in paper? Are there other wayssuch as by video or audio, you would like to receive fund information?
See #5 - generally prefer all communications electronic (save paper). I prefer reading to audio/visual, though such media should be an option for people with reading impairments.
7. How can the SEC better use technology and communication tools to help investors focus on important fund information?
The SEC has some good education material, but it could be easier to find. I usually run across the pages when I'm searching for an authoritative reference at times I'm trying to post information on boards.
DESIGN
8. Is there too much technical writing in fund disclosure? Would you prefer more tables, charts, and graphs? Would these graphic displayes be in addition to, or in place of, text-heavy disclosures?
The plain English prospectuses are already much better than the prospectuses of 20 years ago. You ask a leading question - would more visuals be preferable? For people who are visually oriented or don't read the text, the answer is obviously yes. I prefer more complete information and superfluous graphs don't help me, so I prefer that as much information as possible be presented in text. If you want to _add_ graphics for other investors, that's fine too.
9. Do you prefer to receive shorter 'Summary' disclosures, with additional information available online or upon request?
See #3 - I don't find much value in summary prospectuses. I'd like the option to receive electronically full prospectuses by default rather than summary ones. Regardless, all information should be available both online and upon request.
10. Should fund disclosures be more personalized? For example, should disclosures show the amount of fees you paid or your actual investment returns? If so, how?
Many people find this useful, so I don't object to it being added. However, such personalized information makes it difficult to compare funds. For example, say I spent $100 in fees on fund A and $50 in fees on fund B. What does that tell me about the relative costs of these funds? Am I paying too much for fund A, even though I may have 5 times as much invested there as in fund B.
I'll stick with percentages. I'm fully capable of multiplying two numbers to get my "personalized" figures.
CONTENT
11. Do fund disclosures make the fund's strategies and the level of risk clear? How can funds improve these disclosures? Would a risk rating, such as a numerical or graphical measure of risk, be helpful?
Fund disclosures both help and hurt making risk clear. They help in the sense that they give investors a better idea of what techniques the fund might use, and what types of securities the fund might invest in, each carrying its own level of risk. However, these disclosures tend to obfuscate because they don't make clear how the fund normally functions or what types of securities it actually (under normal circumstances) invests in.
In this sense, they read like drug disclosures, where one expects to read "may cause death" in all of them, even if there is a 0.0001% chance of that. It keeps the lawyers happy. (See Calif. Prop 65.) When Michael Price managed the Mutual Series funds (e.g. MDISX), now part of Franklin Templeton, they were low risk funds. Yet, because they invested heavily in securities of distressed companies, the prospectuses made the funds appear to be extremely risky. These days, many if not most funds use derivatives. These can be used aggressively or defensively to reduce risk. Saying that a fund uses derivatives scares away many investors and doesn't help me understand how they're actually being used.
Perhaps a couple of additions to a prospectus' listing of risk factors could help:
1. A percentage or grade (high, medium, low) indicating how common the use (typical) of the technique or security type is in he fund
2. A grading of how much of a risk this technique creats (very high, high, moderate, low, very low). This could be either fund specific (risk could depend on how a technique was used by the fund) or standardized by the SEC (less useful, but easier to administer and enforce).
12. Fund fees and expenses can significantly affect a fund's investment returns over time. Do you think funds clearly disclose their fees and expenses? How could funds improve the disclosure of fees and expenses? Would a comparison of your funds fees against other funds fees help?
A bit more clarity about administrative fees would help. Sometimes these are included as part of 12b-1 fees, sometimes they are listed as a separate line item, sometimes they are simply included in "other" fees. More generally, it would be nice to have an idea what a fund is counting as "other" fees, unless the amount is de minimus.
As noted in #2, a line item showing brokerage commissions paid by the fund would help.
It would be nice to have a comparison of fees for all share classes of a fund even if the prospectus does not cover those other classes. Comparing fees against fees of other funds could be problematic unless the line items are standardized (see comment above about administrative fees). A simple comparison with the dollar weighted average total expense ratio for a fund's peer class (however that is defined) might be easier and just as useful.
13. Do you consider the past performance of a fund when making an investment decision? How could we improve the presentation of performance information?
Yes I use this information. I like the fact that the SEC uses standardized time periods. It would be helpful to add the last full business cycle to the list of comparison periods.
FINAL THOUGHTS
14. Aside from this questionnaire, are there other ways the SEC can engage with investors, like you, on key topics? Is there anything else you would like to tell us?
I am delighted to have this opportunity to offer suggestions and thoughts to the SEC. The SEC also accepts comments on proposed regulations, but unless one goes searching for current proposals or happens upon an article describing them, one does not know about the proposals until it is too late. Perhaps people could sign up for email notifications of proposed regs based on interest (type of regulation).