Massachusetts securities regulators are investigating broker-dealers offering target-date funds after many of their investors were hit with unexpected tax bills.

The state's Securities Division has sent letters seeking information from American Fund Distributors, Blackrock Investments, Fidelity Brokerage Services, T. Rowe Price Services and Vanguard Marketing Corporation on potential tax disclosure issues related to the firms' target-date mutual funds, Massachusetts Secretary of State William Galvin announced today.

The companies made changes to the funds that “disproportionately impacted retail investors and resulted in some receiving hefty tax bills they did not expect,” Galvin said in a press release.

The broker-dealers were given until February 9 to hand over a laundry list of information, including all target-date funds offered in the state, customer complaints and a description of any changes the B-Ds have made to their required investment minimums for target-date mutual funds over the past two-years, according to a copy of the letter obtained by Financial Advisor magazine.

Galvin also asked the B-Ds for all related disclosures and marketing and educational materials they offered when investors invested in these funds.

Galvin said he is particularly concerned by reports of inadequately disclosed fund changes that shifted financial burdens to small-dollar investors, resulting in large tax bills for those who held the funds in non-retirement accounts.

“As an example of how small investors can be disproportionately impacted, it was reported recently that Vanguard reduced the minimum investment in its institutional target retirement funds from $100 million to $5 million, causing many plans to switch from the standard funds to the institutional target funds. That caused the standard funds to offload holdings, triggering capital gains distributed to the smaller dollar investors who remained, and some of those investors had the funds in taxable accounts,” Galvin spokeswoman Debra O’Malley said.

“Financial institutions can’t be permitted to protect one class of investors at the expense of another,” Galvin said in a statement. “Investors need to be made aware of the risks involved and the tax liabilities they could face in certain circumstances, and I want to make sure institutions are being upfront about these risks.”

Target-date mutual funds are often attractive to investors as a hands-off investment option because they shift allocation as investors age. “Nevertheless, target-date mutual funds, like all investments, can lose money and can be risky. Managerial decisions by fund advisors can also negatively impact retail investors,” the securities division said in a release.

American Funds, Blackrock and Vanguard did not immediately respond to a request for comment on the investigation.