Guest commentary curated by Forbes Opinion.
Mary Jo White, chairwoman of the SEC, has promised to put e-delivery back on the agency’s agenda for consideration by year’s end. (Andrew Harrer/Bloomberg)
Even amidst the rancor and divisiveness that currently blanket Washington, the federal government has a bipartisan opportunity to reduce costs and improve disclosures for investors, while in the process helping the environment, and eliminating expensive, unnecessary papershuffling. Unfortunately, the Securities and Exchange Commission (SEC) struck out on an opportunity to get it done at its public meeting last month.
The SEC made this investor disclosure-cost-environment policy trifecta possible through a May 2015 proposal that would allow mutual funds to deliver shareholder reports electronically as the default option. Believe it or not, SEC rules still require mutual funds to mail paper versions of shareholder reports–some 240 million reports each year–even as most of the American economy moves toward digital delivery for everything from medical records and utility bills to legal documents. Today, millions of mutual fund investors still receive paper reports that many, if not most, don’t open, don’t read, and don’t keep. The current practice results in a waste of millions of dollars and an estimated 1.87 million trees annually, not to mention a complex, weighty end-product that is less user-friendly than an electronic document.
Under the SEC’s proposal, funds would be required periodically to mail notices to all investors informing them of the change to electronic delivery and online availability of shareholder reports. The proposed rule includes a number of provisions ensuring that each and every fund shareholder who wants to receive paper copies of the reports can still easily receive them at no charge and can make the choice between paper and electronic at any time by simply checking a box on a form and dropping it in a mailbox.
In classic Washington fashion, however, cronyist opposition to the proposal has come from a vendor with a near-monopoly in processing and distributing printed mutual fund reports. Adding to the parade of cronies, the paper industry is seeking legislation to prohibit the SEC from spending money to proceed with the proposal. And, of course, the envelope manufacturers and postal employees have weighed in with their self-interested views.
Opponents also have raised a straw man that investors, especially seniors, without Internet access would be harmed. But investors can always get paper, if they want. In fact, with so many mutual funds available today, most investors have had to rely on the Internet for over a decade–ever since most daily newspapers stopped publishing weekday mutual fund prices–to obtain the fund information most important to investors.
Indeed, research shows that there is considerable convergence in Internet access across important demographic groups, including lower-income and elderly populations. Other benefits of electronic delivery include portability (an email address tends to follow an individual more easily in our highly mobile society); usability (anywhere, anytime, any device); and accessibility (improved access for millions of workers who are visually impaired or want to receive communications translated to a different language. In short, the vast majority of investors will enjoy better access with electronic delivery than with paper.
Of course, investors foot the bill for the costs of paper delivery. The Investment Company Institute estimates that the SEC’s electronic delivery rule would save fund shareholders well over $100 million in printing, mailing and processing costs annually, assuming that regulators also address the rules that permit artificially high, monopolistic pricing for print and electronic delivery.
Yet despite all the advantages that the new disclosure system could bring, the SEC whiffed by delaying consideration of this electronic delivery proposal. Fortunately, there may still be hope of resolving this issue in extra innings. At an October meeting, SEC Chair White promised to put e-delivery back on the agency’s agenda for consideration by year’s end, and Commissioner Piwowar laid out a roadmap to meet that schedule. And despite her concerns about the proposal, Commissioner Stein acknowledged the importance of taking advantage of new technology to improve disclosures, as long as the potential risk of harm to investors can be adequately addressed.
It is time for the SEC to embrace needed regulatory changes to bring its disclosure regime out of the dark ages and into the modern era where we consume information on mobile phones rather than phone books, on microcomputers instead of microfiche. That would be a walk-off home run for investors and in the process prove that Washington need not always be dysfunctional.
Mr. Atkins is CEO of Patomak Global Partners and former SEC Commissioner.