PwC Says Disclosure Is Not Enough
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Wednesday, February 25, 2004

PwC Says Disclosure Is Not Enough

Those in the mutual fund industry eager to comply with trading activity and fee structure regulations, which can be ambiguous and open to interpretation, could follow this advice: Disclosure. Disclosure. Disclosure. Or maybe not. A white paper released by PricewaterhouseCoopers US Investment Industry Group suggests that disclosure may not be enough to restore investor confidence and head off charges of improper activity.

The paper suggests focusing on transparency, which goes beyond simply disclosing required data. A transparent reporting system would ensure that investors receive relevant, timely, user-friendly information presented in context. The proposed Funds Reporting Transparency Framework lays out a “logical flow for presenting information” to the investor. It has four main information categories: market outlook, value creating activities, investor protections, and financial results.

The framework aims to improve the “current disclosure practices of [providing] additional layers of information while achieving little improvement in understanding.” Investors should receive information that is relevant to their decision-making. Funds should do away with “generic boilerplate discussion” and provide their customers with more of the information that is already used internally by managers.

“PricewaterhouseCoopers does not believe that transparency can be legislated”, but expects that it will be rewarded in the marketplace as investors gravitate toward the funds that provide both returns and a clear picture of the factors driving them.

While their definition of transparency calls for a broad release of information, “92 percent of fund executives surveyed believed that greater transparency would not place their fund at a competitive disadvantage.” The senior executives, from 40 fund families, responded in a survey conducted by Harris Interactive and commissioned by PricewaterhouseCoopers.

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