5. Pay directors with fund shares, and disclose which funds they choose for their compensation.
Shareholders want independent directors' interests to be aligned with their own. Paying directors with shares would help accomplish this. Not only would it prevent directors from having no stake at all in the fund -- an all-too-common reality that investors can discover only by reading deep into fund documents -- but it would also tell investors which funds directors are most comfortable with.
That information is so valuable that it might get shareholders -- or their financial advisers -- to dig further into the disclosure documents.
6. Offer a quick summary of prospectus changes.
Whenever a fund changes its prospectus or the rules it operates under, those adjustments should be highlighted upfront. Sports rule books, for example, typically do this. By highlighting what is different this year, the fund immediately alerts investors to what has changed and what they might want to look at, even if all they do is skim the documents.
7. Declare what a fund really means to its manager.
We'd all like to believe that the fund we own is the most important task on our fund manager's agenda. But read a fund's "statement of additional information" -- it's the second part of a prospectus, the one that funds don't actually send you -- and you may find that your fund boss runs other funds, hedge funds, private accounts and more.
What shareholders really want to know is how much money the manager (or team) handles, how much of that their own fund accounts for, and how much of the manager or firm's income is from their fund. When a fund is a small part of the manager's responsibility or compensation, we probably shouldn't make it a big part of our portfolios.
And while we're improving disclosure about managers, let's put the disclosure of a manager's holdings in a fund into a one-line boldface sentence right below their bio. It should be in the part of the prospectus that shareholders are sent, rather than buried in the back.
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