Lost amidst all the debate in the industry over whether newly anointed Securities and Exchange Commission Chairman Christopher Cox will run the regulator with an iron fist or a blind eye, is the long-standing issue of whether mutual fund prospectuses will ever become user-friendly.
During his swearing-in late last week, the California Republican said he would indeed make rule enforcement a priority, but also said that it's time to begin printing proxy statements and prospectuses in plain English.
"When a company issues a proxy statement, should the millions of ordinary Americans who own the company's stock be able to read and understand it?" Cox asked, during a speech at the regulator's Washington headquarters. "It is all well and good that their broker's lawyer could understand it. But what about the individual investors themselves - is disclosure for them, too?"
Prospectus overhaul is a contentious issue among fund executives and regulators. At an Investment Company Institute conference earlier this year in Palm Desert, Calif., Kathryn McGrath, a partner a Washington-based Crowell & Moring and a former director of the SEC's Division of Investment Management, said prospectus overhaul is a waste of time and money.
"We need to focus on other things, instead of spending so much time on a document no one cares about," she said.
Paul Roye, a senior vice president at Los Angeles-based Capital Research & Management and another former investment management division director, said at the same meeting, "give [investors] what they can digest and then send them to the Internet."
"The average American doesn't want to read the prospectus," added Marianne Smyth, a partner at Wilmer Cutler Pickering Hall & Dorr of Washington and another SEC alumni. "Abandon the prospectus. It's for the industry, not the individual investor."
Cox, however, praised the efforts of one of his predecessors, Arthur Levitt, a Democrat who tried placed a premium on publishing financial information in plain English.
"Levitt's vision was dead-on," said Cox, who spent 17 years in Congress before joining the SEC. "How hard do you think it would be today to find offensive legalese in almost any mutual fund prospectus?"
Cox also promised that all statements and information from the SEC would be understandable by the everyday American.