SEC to Vote on Investment Company Names Rule Wednesday

What You Need to Know

The rule is aimed at categories of mutual fund and ETF names that the SEC thinks are likely to mislead investors.
ICI, a trade group for the fund industry opposes the plan, saying it would be incredibly costly, affecting 10,000 funds.
Better Markets, a group that supports market regulation, says the rule is overdue for an update.

The Securities and Exchange Commission plans to consider Wednesday a final rule to address certain broad categories of investment company names that are likely to mislead investors about investments and risks.

The proposed amendments the commission will consider “also include enhanced prospectus disclosure requirements for terminology used in investment company names, as well as public reporting regarding compliance with new names-related requirements,” according to a notice on the agency’s website.

Investment company names include those of mutual funds, ETFs and business development companies.

A spokesperson for the Investment Company Institute, a trade group for the fund industry based in Washington, told ThinkAdvisor Monday that the ICI continues “to be concerned by the sweeping scope of the proposed names rule.”

ICI, the spokesperson said, “knows the rule would be incredibly costly, impacting 10,000 funds. By the SEC’s own cost estimate, that would add up to a multibillion-dollar implementation burden. Such costs will harm the end investor. It’s also difficult to see why this rule is needed. There has not been a spate of issues with fund names; in fact, the SEC’s own exam priorities have not listed fund names for the past four years.”

The proposed rule, the spokesperson said, “would even capture subjective terms like ‘growth’ and ‘value,’ which in the case of index funds, are defined differently by different index providers. We hope that the SEC has taken our concerns into account as they move to finalize the rule. Fund names do not, and cannot, communicate everything that investors want to know about a fund before investing.”

The SEC said in January that it planned to issue a final rule on the issue in October.