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A Public Assessment of the Proposed Mutual Fund Disclosure Forms: A Report on Investor and Non-Investor Views of Form Content and Presentation

by Curt Davies, AARP Knowledge Management, AARP Research, May 2004

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In an effort to provide prospective investors with important information on investment costs and possible broker conflicts of interest, the Security and Exchange Commission has proposed two new forms to disclose this information before the purchase of mutual fund shares (the Point of Sale Form) and immediately afterward (the Confirmation Form). This study evaluated the clarity and effectiveness of those forms among more than 2,000 individuals aged 35+ from various age groups, ethnicities, and levels of income, education, and investment experience. Of that group, 1,011 participants reviewed the forms for Class A shares, for which a fee is paid to the broker at the time of purchase, and 1,023 reviewed the forms for Class B shares, for which a fee is paid when the investor sells the shares.

Results are presented separately for both classes of shares concerning both forms' overall clarity and their elucidation of share information, sales loads and fees, broker commissions, investment terminology, and total transaction cost. Also included are respondents' suggestions for making the forms easier to understand. Specific data are displayed in 80 tables and more than 40 figures. Among the key findings are the following:

  • Generally, respondents were able to identify key features of both the Point of Sale Form and the Confirmation Form. Yet a majority could not correctly identify the name of the mutual fund listed on both forms.
  • Respondents consistently suggested that the forms be simplified and that more "plain English" replace the "legalese" and sophisticated financial terminology.
  • When respondents were asked to locate specific information that would have typically required more of their time and concentration (such as a specific dollar amount or the name of the mutual fund from which the shares were purchased), respondents were less likely to respond correctly.

The data were collected by Knowledge Networks in March 2004 via Web TV. The report was written by Curt Davies of Knowledge Management at AARP. For further information, please contact Curt Davies at 202/434-6295. (158 pages)