Washington, D.C. – In a letter to the Securities and Exchange Commission (SEC), CFA highlighted how investors are at risk of being deceived or misled by fund names that suggest the fund invests one way but invests another. The Names Rule, promulgated in 2001, was intended to protect against these risks by requiring funds with a name that suggests a particular investment emphasis to invest in a manner consistent with its name while leaving funds broad latitude to choose names that create no such expectation. Unfortunately, there are significant gaps and loopholes in the rule that do not ensure that funds invest in a manner that is consistent with their names in all circumstances, according to the letter.

CFA urged the Commission to both close the gaps and loopholes in the existing Names Rule and expand its application to cover all instances in which fund names create the reasonable expectation that the funds will invest in a certain way. This is necessary, CFA argued, to ensure that funds do not adopt names that create that reasonable expectation without operating in a manner that is consistent with that expectation. Failure to make these suggested changes could result in investors’ suffering harm if they choose funds based on their names that are inappropriate to their investment needs, goals, or risk tolerance, according to the letter.