Normative Transparency of Mutual Fund Disclosure and the Case of the Expense Ratio

This study further develops and defines the concept of normative transparency of disclosure. As defined, mutual fund normative transparency is that fund proactive, voluntary disclosure as well as legal and regulatory disclosure required for investors to be able to make information efficient fund investment decisions.To attain normative transparency of mutual funds disclosure, Congress, the SEC, and fund advisers, managers and independent directors should individually and collectively become more proactive in serving and protecting shareholders. Normative transparency of disclosure is not likely to be achieved across the board. There are political obstacles to complete transparency being achieved by Congress and the SEC, or by collaboration with individual funds, the funds industry and its trade association. The final reality is that is will likely fall to independent directors of individual mutual funds to provide normative transparency of disclosure for their shareholders. And, what should be done will also change over time as the industry evolves. Future study of normative transparency of mutual fund disclosure should continue to find its way across the breadth of fund laws, regulations, and practices. Included should be assessment of the fund cost and performance differences to current shareholders from flow (portfolio changes due to investor purchases and redemptions of fund shares) versus non-flow (intended portfolio changes). Providing liquidity to investors can have a larger impact on fund performance than the current regulatory expense ratio