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Tuesday, February 12, 2008

Edelman Pens Letter to the SEC

News summary by MFWire's editors

Fund industry gadfly, Ric Edelman doesn't think the SEC's proposed disclosure rule changes go far enough, so he wrote them a letter. Edelman contends that the summary prospectuses will be inefficient because the average investor will never read them. Also, he says that it is "insufficient to report fees and expenses as a percentage of assets." Edelman's solution? Require fund companies to disclose fees in dollars and cents in monthly, quarterly and annual statements.

Company Press Release

Not good enough. So says Ric Edelman about proposals to improve disclosure of fees in mutual funds and 401(k) plans.

Proposed rule changes were announced recently by both the Securities and Exchange Commission and the U.S. Department of Labor.

The SEC said its proposal would require that mutual fund investors be provided "a concise, plain English summary of key information about a mutual fund's investment objectives, strategies, costs, and risks." The Labor Department's proposal strives for enhanced disclosure for participants in 401(k) plans of their plan provider's compensation and potential conflicts of interest. Both agencies are currently accepting public comments on their proposals.

But Edelman, nationally recognized financial advisor and bestselling author who has written extensively on the subject of investment management fees, said the proposed changes are insufficient.

In letters to the SEC and the Labor Department, Edelman said the proposals -- while worthy of implementation -- do not go far enough. "It is not sufficient to publish summary information in prospectuses or other publications, because the average investor never reads these documents," he wrote. "It is also insufficient to report fees and expenses as a percentage of assets," said Edelman, noting that a large portion of investors are unable to translate percentages into the specific charges they pay in their own accounts.

Edelman urged the regulators to require fund operators to disclose costs -- in dollars and cents -- on each investor's monthly, quarterly and annual statements. "Funds already provide share balances and share prices," he wrote, "demonstrating that they are perfectly able to provide account-specific information."

Regarding mutual funds, Edelman's said in his letter to the SEC that the required fee disclosure should apply to all costs -- both those currently found in a fund's prospectus as well as those listed separately in its Statement of Additional Information.

The author of six books on investing and personal finance, Edelman's current best seller, The Lies About Money, reveals that improper business practices pervade the retail mutual fund industry and are resulting in higher fees, lower returns, and increased risk for investors. A section of the book titled "Hidden Fees" details how average investors are kept unaware of the recurring mutual fund charges they are paying.

Edelman is founder and chairman of Edelman Financial, which manages nearly $4 billion in assets for thousands of individuals and families nationwide. Barron's in 2007 rated Edelman as the No. 2 independent financial advisor in the nation.

Host of The Ric Edelman Show, broadcast nationwide via the ABC Radio Networks, Edelman also writes a syndicated newspaper financial advice column. He is a frequently called on by the media as a guest expert on personal finance and investment issues, and is currently appearing as a panelist on the CNBC series, The Millionaire Inside.

Edited by: Erin Kello

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