Investors to Get New Information on Fund Expenses

Investors will get more detailed information about mutual fund expenses and deals in which brokerage firms pay some of those bills under new rules approved Monday.

The Securities and Exchange Commission’s rules, effective Sept. 1, could result in some funds reporting lower yields because of the new accounting changes.

“It helps the average investor to understand the total amount of expenses paid by the fund,” said Anthony Evangelista, an assistant chief accountant in the SEC’s mutual funds section.

At issue are deals that mutual funds cut with Wall Street brokerage firms for what essentially constitute an exchange of services.

Here’s how it works: a brokerage firm agrees to pay expenses related to stock trading--legal fees or stock transfer fees. In exchange, the fund steers trading business to the brokerage. The fund’s expenses are lower because the brokerage firm is paying part of its trading-related bills.

The SEC was concerned investors were being misled about the true expense picture because funds using such arrangements could report lower expenses than their rivals.

In addition, the rule requires equity funds to reveal the average commission paid in connection with securities trading. The information will be disclosed in the front of the fund prospectus beginning Sept. 1.

The new rules will provide a “level playing field among all funds,” Evangelista said.