February 25, 2004
The disclosures you recommend are long overdue. The frequency of communicating this information should be wherever and whenever a fund company is allowed to promote its funds by showing return percentages. In other words, when a fund promotes its offerings by showing the benefit using past returns as proxy, with no guarantee of future returns,it should also show the costthat the investor incurs, regardless of return.
In particular, two venues have long needed to provide more information to avoid misleading the public:
1. Advertisements and promotional material should list the total expense percentage directly next to the return promoted for the fund.
2. 401k informational materials, and annually to all 401k participants. This is of particular concern because of personal experience with my husbands 401k sponsor a small union and administrator. They are reluctant to give out much information. We do not get annual reports on the funds. We know our funds are expensive and poor performing in fact, are under investigation by the SEC, but they are our only choice. We have tried, with a petition to the administrator and sponsor, to have higher quality funds made available. The petition went unanswered, raising questions of fiduciary responsibility.
Administration of 401ks is the real wolf in the forest. Fund companies and their broker and administrator colleagues would prefer this area to remain unexplored because it involves captive investors who are not subject to market forces. They must pick from funds offered, even if the fees are high, if they want to have the tax advantages of 401k investing.
I hope you will consider expanding disclosure to advertising materials and 401k information provided at least annually. Furthermore, while you are at it, take a look at the financial arrangements among brokers, administrators and sponsors. To introduce some element of market force to the choices 401k participants have, every 401k should be required to include at least one low cost index fund with fees, say, no more than twice the lowest in the industry. Perhaps that way, the other funds offered would have some incentive to lower their fees.