New SEC Rule Allows Funds to Exclude Small Business Investment Costs from Reported Fees: What It Means for Your 401k.

The “Access to Small Business Investor Capital Act” is a highly technical bill that takes aim at the fine print of how investment companies report their costs to the Securities and Exchange Commission (SEC). Specifically, this bill gives certain funds a new way to calculate and disclose their fees when they file their official registration statements (like Forms N1A, N2, and N3).

The Fine Print Cleanup: Excluding BDC Fees

Here’s the core change: Currently, when an investment company reports its total operating costs, it often has to include the underlying fees and expenses it indirectly pays by investing in other funds—a line item called “Acquired Fund Fees and Expenses.” This bill creates a specific exception. If the acquired fund is a Business Development Company (BDC), the investment company now has the option to exclude those indirect fees from its reported total. Think of a BDC as a specialized investment vehicle that provides capital to small and mid-sized private companies.

Why This Matters for Investors

If you have a 401k or an IRA invested in a mutual fund or Exchange Traded Fund (ETF) that holds BDCs, this change affects the numbers you see on your fund’s prospectus. The stated goal is to “clean up” the fee disclosure. The argument is that these BDC fees are already transparently disclosed at the BDC level, so forcing the investing fund to report them again makes the total cost look inflated and potentially confusing. By allowing the exclusion of these indirect fees, the investing fund’s reported expense ratio could appear lower.

For the investment companies themselves, this is a procedural win, simplifying their compliance and reporting. However, for the retail investor—the everyday person reading that prospectus—this is where things get tricky. While the underlying costs haven't changed, the way they are presented has. The fund’s reported expense ratio is a key metric people use to compare investments. If Fund A excludes the BDC fees and Fund B doesn't (or invests in non-BDC funds that still require reporting), comparing their expense ratios becomes less straightforward. The total cost of ownership is still there, but now some of it is pushed further into the fine print, potentially making it harder to get a quick, accurate read on the true total cost of your investment at a glance.