SEC rule upends process for shareholder reports (Fund Directions)

The SEC’s rule requiring tailored shareholder reports for mutual funds and ETFs has created a number of extra steps for advisers to these funds. Fund CCOs are finding the rule’s requirement to make shareholder reports more useful for retail investors has created more compliance burdens than expected while increasing costs. Difficulties arise from the amount of effort necessary to rewrite and redesign reports to comply with the concise and visually engaging format defined in the rule, as well as the need to print and mail reports. Amy Lynch, FrontLine’s Founder and President, discusses how more work will be necessary surrounding the rule’s mailing requirement, especially when coupled with the elimination of an exemption that allowed reports to be offered on fund websites. She explains that with postal delivery being the default method under the rule, funds must now seek permission from shareholders for electronic delivery by receiving authorization from them or confirming their prior preferences. Ms. Lynch adds that an industry-wide consensus appears to view the mailing requirement as a step back, reverting to a prior system that increases costs and does not allow for a reliable way to ensure delivery or track which shareholders receive reports. She also comments that fund boards should have an interest in the oversight of their funds’ compliance with the rule, since there are significant alterations to the shareholder report process that require implementation. See Fund Directions, “Shareholder report rules pose even bigger challenge than fund CCOs expected”