Some Fund Names Guarantee SEC Scrutiny

Securities and Derivative Litigation   |   March 31, 2014
Share Page

The SEC staff is trying to limit the use of investment company fund names that include terms such as "guaranteed" or "protected" that suggest protection from market, credit, or other risk. A recent Guidance Update issued by the Division of Investment Management encourages investment companies to consider eliminating or qualifying
such terms.

The Guidance Update emphasizes that, even if the body of a prospectus and other disclosure documents qualify fund names by fully disclosing any limitations on the scope of the protection provided, investors often focus on a name to determine the level of risk. Accordingly, the SEC staff has already requested that some funds (including long-established ones) change their names. Practically speaking, any such change generally will involve removing the offending word (or any of its derivatives), as it is usually awkward to add satisfactory qualifying language to the name itself.

Still unresolved is the impact on names of variable annuity or variable life insurance products, or of specific benefits offered under them. These products and benefits, consistent with their insurance element, not infrequently have names that include terms such as "guaranteed" and "protection."

At a recent industry conference, Division Director Norm Champ noted that, while insurance is frequently associated with protection, when it is also an investment product, the protection is often limited in significant ways, making it important that the product name not overstate the safety provided. On the other hand, at the same conference, an Assistant Director of the Division suggested that SEC staff may not consider it necessary to scrutinize the names of some rider benefits under these products as closely as the names of the underlying funds that support them.

©2020 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.

Subscribe to Publications


The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.