Morningstar Inc. says the Securities and Exchange Commission is not requiring fund companies to provide advisors and investors with enough information on investments in target-date funds.

The SEC would require fund companies in marketing materials to show a target-date fund's asset mix only at the target date; Morningstar thinks that's misleading and a chart should show the asset mix all along the glide path.

Target-date funds are becoming a primary means for investors to save for retirement and therefore regulations regarding disclosure information needs to be as clear as possible, according to Morningstar.

In a letter to SEC Secretary Elizabeth M. Murphy, Morningstar says it objects to the SEC's proposal that the asset mix only at the target date be shown, when the fund name is first mentioned. Such a requirement would give the asset mix at only one point in time and could be confusing or misleading to investors, Morningstar says. Instead, a chart showing the asset mix at all points along the fund's glide path within the informational material would be more useful, says Morningstar.

"The proposed rule would overemphasize the importance of one point in time for an investment that's designed to change in order to serve investors well for decades," Morningstar said. "This disclosure would discount the significance of how the fund invests before and after that point, which collectively are more important to the fund's long-term performance and the investor's success. The single asset allocation at the target date does not provide sufficient insight into the broader glide path."

Not only that, but the proposed target-year disclosure could be confusing, Morningstar said. "Most investors choose target-date funds within their defined contribution plan, which typically offers just one target-date series," says Morningstar. "As a result, every fund in the series that precedes its target date would have the same asset allocation at the target date, even though the funds are designed for participants of varying ages and may have vastly different allocations at the time of enrollment."

Therefore, a chart showing the asset mix at various points leading up to the potential redemption date would be more useful, it added.

Those who are choosing target-date funds, such as advisors, consultants and plan sponsors, need even more information on the glide path for each asset type. They should be provided with a breakdown of each asset within a class and how its percentage of the fund will change over time, Morningstar says.

The funds should retain some flexibility as to how they depict their asset mix, but more than just stocks and bonds should be shown, Morningstar recommends. Anything representing more than 10% of the asset mix should be depicted visually in the graphic.

"The target-date industry would benefit from clear guidelines from the commission outlining what types of investments constitute each broad asset class," Morningstar recommends.

In addition, any funds in which the investment manager may make tactical changes along the way should fully explain that changes might be made and where the information on changes can be found.

There is nothing wrong with changing the mix of assets from what had originally been set, but "frequent changes can be cause for concern and can lead to poor investor experience," and should be disclosed to investors, Morningstar recommends.

Morningstar further wants target-date funds to clearly say if they are designed to be redeemed at retirement or held through retirement. The SEC would require that target-date funds state clearly they are not a guaranteed source of income for retirement and Morningstar supports the requirement.

"Target-date funds are an important part of investors' retirement savings," Morningstar says. "While the design of these investments is complex, they still provide a relatively straightforward way for investors to broadly diversify their savings and better meet their retirement savings goals."

-Karen DeMasters