Hancock Lists Risks--in Plain English
If you want to know what risks you run in your mutual funds, but you can’t translate the legalese and securities industry jargon in your prospectus, you might want to read one of John Hancock’s new prospectuses. Even if you are not buying one of its funds.
They’ll tell you what risks you are taking. Boy, will they tell you.
In one of the more startling and refreshing disclosures, John Hancock’s simplified, multi-fund, plain-English prospectuses list about 15 kinds of risk, depending on the type of funds; defines them clearly; then explains the various securities in the funds, and which risks they engender. It’s topped off with a simple chart that tells you how much of a risk each fund can take, and compares the funds to one another.
“We found that when we changed the prospectus from the old form, we ended up using the word ‘risk’ more,” said Zeldy Lyman, vice president and director of retail marketing for Hancock Funds.
Don’t be scared off by all the risks. You’ve been taking them all along, though it may not have been clear from the prospectus you have. Now you just have a better idea of what they are.
The prospectuses are broken down by fund type: growth, income, international/global, and growth and income. Each prospectus lists six to eight funds and each fund gets two pages that explain the funds’ goals, risk factors, securities and management. There is a breakdown of expenses and financial highlights, including a bar graph to show the volatility of a fund over time.
Is all that going to make John Hancock’s funds perform better for you? Probably not. But the company has performed admirably for all fund buyers and perhaps did the industry a service by giving it a new standard, and giving investors something besides dollars to measure service and performance of their fund companies.
“They came in early in the process and told us what they wanted to do,” said Heidi Stam, associate director of the Securities and Exchange Commission’s division of investment management, which oversees mutual funds.
Stam said the effort was in line with the SEC’s desire to provide clearer information. At the agency’s request, eight fund companies have created two-page profile prospectuses that provide short, clear, essential information about their funds. The SEC is evaluating those to see if they can serve as alternatives or adjuncts to the regular prospectus. A decision is expected later this year.
And while certain information has to be in the prospectus, writing it in plain English is not forbidden, despite evidence to the contrary in the average prospectus. Clarity is encouraged, and Stam said most of the direct-marketed mutual fund companies, like Fidelity, Janus and Vanguard, have upgraded their prospectuses to make them more intelligible to investors.
But Hancock’s funds are broker-sold, sometimes to customers who buy over the phone and don’t see the prospectus until afterward. Lyman said she expects the new form will encourage brokers to show it to customers in their office.
“While there is slightly less information, it is more easily discernible. We really didn’t sacrifice anything,” Lyman said.
