A Guidance Statement released by the Securities and Exchange Commission’s (SEC) Investment Management Division in early November, 2013 offers a warning to mutual funds and other investment companies to avoid naming funds in such a way that “suggests safety or a protection from loss.” The Commission’s Guidance emphasizes that if a fund “exposes investors to market, credit, or other risks,” it may potentially be misleading investors into a false sense of investment security.
The Investment Management Division is raising their focus levels on funds which employ names including words like “guaranteed,” “protection,” “safe,” etc. in their titles. Funds that have chosen such titles that include words connoting safety from loss, according to the Division, are advised to reevaluate and reconsider other names which do not have the potential to mislead and which “defines the scope and limits” of the protection given by the fund. An increase in the use of the term “protected” in fund names, by funds who manage their “volatility” by investing in “cash, short-term fixed income instruments, or other investments,” has precipitated the SEC to begin requesting name changes by certain mutual funds. The sudden interest by the SEC also has many funds replacing the term “protected” with phrases like “managed risk,” amongst other options. In the Guidance Statement, the SEC urges fund advisers and boards to evaluate current fund names and make any changes necessary to ensure the names are not potentially misleading.
For more information, or for assistance on other compliance topics, please contact us at (619) 278-0020, or email us at firstname.lastname@example.org.
GENERAL DISCLAIMER: Information contained within this blog does not create a business-client relationship, and none of the content of this blog can be deemed to be consultive business advice.