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

Abstract

The general concept of transparency in disclosure that applies to public and private and domestic and international institutions and governments also applies to mutual funds. The key issue is no longer whether transparency is desirable, but rather how it should be achieved. This study further develops and defines the concept of normative transparency of disclosure. 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 it will likely fall to independent directors of individual mutual funds to provide normative transparency of disclosure for their shareholders. What should be done will also change over time as the industry evolves.