Regulating in Name Only: The Consequences of Mutual Fund Naming Rules

Abstract

A large body of literature finds that misleading mutual fund names can distort investor allocation decisions. The SEC's Fund Names Rule, passed in 2001 and amended in 2023, aims to curb this misrepresentation by requiring fund names to reflect actual holdings. We provide the first empirical evaluation of fund and market responses to both the original rule and its amendment. Our findings reveal limited regulatory impact. Compliance rates did not improve, investors did not consistently penalize non-compliant funds with redemptions, and funds do not change their holdings or names to comply with the regulation. To better understand the lack of response, we examine whether private market stakeholders (investors and information intermediaries) are more effective at disciplining fund behavior than regulators. Funds only adjust their holdings when the market actively penalizes non-compliance, but such discipline is rare. Similarly, funds only adjust their holdings when their name does not align with Morningstar's Style Box classifications, rather than in response to SEC-defined compliance. These findings show that while disclosure regulation may hold intuitive appeal, it may be ineffective when private market forces already address transparency concerns. 

Keywords: Mutual Funds, Fund Names Rule, 35d-1, SEC Regulation, Mislabeling, Information Intermediaries, Transparency Regulation JEL Classification: G11

JEL Classification: G11, G18, G23, K22