The SEC recently took a closer look at certain target-date funds, and while it liked what they saw in general, several deficiencies related to compliance and disclosures were noted.
The latest Risk Alert to investors from the agency’s Office of Compliance Inspections and Examinations (OCIE) noted that its’ staff examined over 30 TDFs, including both “to” and “through” funds, to review whether the TDFs’ were invested according to the asset allocations stated in the funds’ prospectuses.
It also examined whether the associated investment risks were consistent with fund disclosures (including marketing material).
OCIE staff observed that most TDFs appeared to be in general compliance with the 1940 Act “in the areas reviewed.”
However, it found:
Some TDFs had incomplete and potentially misleading disclosures
They included asset allocations, both current and prospective over time. For example, the TDFs had marketing materials with asset allocation disclosures that differed from the TDFs’ prospectus disclosures.
Glide path changes and the impact on asset allocations were also singled out, as were” conflicts of interest, such as those that may result from the use of affiliated funds and affiliated investment advisers.”
Many TDFs had incomplete or missing policies and procedures
Monitoring asset allocations, including on-going monitoring, were cited by the SEC, as were policies and procedures for “overseeing implementation of changes to their current glide path asset allocations.”
Overseeing advertisements and sales literature was also mentioned, which resulted in advertising disclosures that were inconsistent with prospectus disclosures and were potentially misleading.
Lastly, procedures for monitoring whether disclosures regarding glide path deviations were accurate were also absent.
“In sharing the information in this Risk Alert, OCIE encourages funds to review their practices, policies, and procedures in these areas and to consider improvements in funds’ compliance programs, as may be appropriate,” the alert concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
