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SEC Takes an E-Delivery Step for Fund Reports

The Securities and Exchange Commission approved a proposal on June 4 that it says will improve the method for delivering fund shareholder reports to investors in mutual funds, ETFs and other investment funds.

The SEC also announced that it is inviting comments on improving the fund disclosures and seeking feedback on the fees that intermediaries charge for delivering fund reports.

While not quite a full pivot to e-delivery, the initiative appears to take a positive step toward eliminating the costly delivery of expansive fund reports that could more readily be viewed on a website.

New, optional “notice and access” method for delivering fund shareholder reports. As the first of three releases, the SEC’s new 30e-3 rule creates an optional “notice and access” method for delivering shareholder reports.

Under the rule, a fund may deliver its shareholder reports by making them publicly accessible on a website and sending investors a paper notice of each report’s availability by mail. Investors who still prefer to receive the full reports in paper can choose that option at any time free of charge.

The SEC notes that each notice is required to explain how investors may access the report and request paper copies. The notice may also include information on how an investor can elect to receive shareholder reports or other documents by electronic delivery and additional content from the shareholder report.

The final rule provides for an extended transition period that, according to a summary, is intended to “better inform current investors of the coming change.” During the transition period, the earliest that notices may be transmitted to investors in lieu of a paper report is Jan. 1, 2021. The SEC adds, however, that funds will be required to provide two years of notice to shareholders before relying on the rule, if relying on it before Jan. 1, 2022.

Additional ways to modernize fund information. The SEC is also seeking comments on ways to enhance fund disclosures and whether the information is presented in a way that works best for individual investors. To encourage feedback from individual commenters, the release includes a feedback form that includes key questions from the request for comments.

Fees intermediaries charge for delivering fund reports. Finally, the Commission is seeking comments on the framework for certain processing fees that broker-dealers and other intermediaries charge funds for delivering fund shareholder reports and other materials to investors. Given the adoption of rule 30e-3, the SEC believes it is appropriate to consider more broadly the overall framework for the processing fees.

The agency is requesting comments on:

  • the assessment of processing fees and transparency of these fees;

  • remittances received by financial intermediaries for delivery of fund documents;

  • whether the structure and level of processing fees should be set by another entity; and

  • the appropriateness of these fees in cases where intermediaries are separately paid shareholder servicing fees from fund assets.

The Commission is seeking comments on the two requests until Oct. 31, 2018.

The American Retirement Association recently launched an effort to make electronic delivery of 401(k) plan information the default method for communicating with plan participants. Backed by a recent academic study, the ARA contends that e-delivery has the potential to significantly improve the retirement security of millions of Americans through reduced costs, improved access and interactive communication features.