Mutual fund information might become even easier to sift through in the coming months for investors, analysts and brokers.
The Securities and Exchange Commission voted unanimously last Wednesday to seek public comment for 30 days on extending a proposal that would allow mutual fund companies to submit key written information in prospectus risk/return summaries in interactive data format. The summaries include information about funds' investment objectives and strategies, risks, costs and historical performance. Presently, funds can tag financial data.
Nearly half of Americans own mutual funds to save for retirement, college and medical care, said SEC Chairman Christopher Cox. It is critical that the 90 million fund investors in the country have the best information possible-readily accessible, accurate and easily comparable from one fund to another.
By starting with a voluntary program, the process can be evaluated for usefulness and then implemented more effectively on a broader scale, Cox commented.
Rather than having investors pour through piles of paper data, the extensible business reporting language (XBRL) program would have funds posting fund profiles containing embedded hyperlinks online. The profiles would display pertinent information that investors need to know when evaluating whether a fund is worth buying or not. The hyperlinks would lead to underlying financial information contained in the prospectus for those who actually want it.
As the first wave of the 77 million Baby Boomers begins to retire, the need to access, analyze and understand mutual fund information will only become more critical, said SEC Commissioner Roel Campos.
The Investment Company Institute developed the XBRL taxonomy for risk/return summaries. The draft is available on the ICI's website, with the public comment period ending Feb. 20.
Currently, the proposal shows great promise in making interactive data a reality for mutual fund investors, said Cox, adding that he would like to see interactive disclosure extend to variable annuities, exchange-traded-funds and debt securities products in the future.
Paper-based prospectuses make it virtually impossible for investors to compare mutual fund data, whereas tagging makes information readily available to investors, analysts and brokers and enables them to extract information that they need, all on an automated basis, said Andrew "Buddy" Donohue, director of the SEC's division of investment management.
Tagging also results in more accurate information since it eliminates the need for repeated manual entry of data, he said.
The plan requires a second vote by the commission for final adoption following the comment period.
"I hope individual mutual fund investors and firms comment on the ease of use of interactive data and any potential drawbacks," said SEC Commissioner Annette Nazareth.
"XBRL is still going through the evaluation process," said Mike Willis, founding chairman of the not-for-profit group XBRL International and a partner with Pricewaterhouse- Coopers. There are still misconceptions and some companies still believe that it is going to cost a lot of money to implement the technology, he said.
But firms should start embracing XBRL now, said John Stantial, director of financial reporting at United Technologies. It is easier to begin learning the technology now than to automatically comply with a SEC mandate to start filing documents in XBRL, Stantial added. United Technologies has filed 10 documents thus far in XBRL format.
Although there has been a lot of emphasis on the SEC's interest in making it easier for regulators to review data, XBRL also benefits companies' own internal review of information, said Sherad Cravens, vice president of marketing and strategy at R.R. Donnelley Financial Services Group. The format can also increase productivity, he added.
The amount of time it takes to implement XBRL depends on each firm's understanding of the program and the requirements involved. The process is relatively straightforward, especially if a company hires someone to do the complicated aspects for them, Cravens said.
"Companies are starting to look into this, and there has been quite a bit of interest in the last six months," said Cravens, adding that right now the program is not time sensitive. Companies that have implemented XBRL already are being proactive and want to show financial leadership in the industry, he said.
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