Having trouble trying to compare TDFs? You’re not alone, and the SEC has noticed. The agency announced April 3 that it is seeking comments on recommendations made by the Investment Advisory Committee to develop a glide path illustration based on a standardized measure of fund risk. The illustration would replace or supplement what it previously proposed in 2010. Interested parties have 60 days to comment.
The SEC notice observes that:
[M]uch of the differences in risk among target date funds can be explained by differences in asset allocation models and glide paths, but that choices of assets within the various asset classes and other risk management practices can also have a significant impact on fund risk levels. … [A]sset allocation may mask significant differences in the risk levels of funds with apparently similar or even identical asset allocation glide paths, particularly when the asset classes are defined broadly. … [A] glide path illustration based on an appropriate, standardized measure of fund risk would be more accurate than an illustration based on asset allocation alone. The Committee suggested that, to promote comparability, risk-based illustrations should be based on a standardized measure of risk.
Because of the limited nature of the comments received last year, and in light of the Committee’s recommendation, the SEC thought that further comment in this area would be helpful. Specifically, the agency is looking for comments on:
• Usefulness and understandability of risk measures
• Illustration of risk measures
• Placement of glide path illustrations
• Calculation of risk measures — specifically, should they be standardized?
• Impact on investors
• Effects on portfolio management
