The Securities and Exchange Commission voted 4 to 1 on June 4 to adopt new Rule 30e-3 under the Investment Company Act of 1940 and related form amendments, allowing registered funds to replace paper delivery of shareholder reports with online access.1 With an earliest operational date of January 1, 2021, the new framework is probably the most transformative — and, in the view of most industry participants, long overdue — advancement in embracing the reality of digital communication as a primary way investors consume information. The SEC also requested comments on enhancing fund disclosures to “improve the investor experience” and on the framework for processing fees charged to funds by intermediaries for the forwarding of fund shareholder reports and other materials to investors.
New Optional Delivery Method
The Rule provides an optional “notice and access” method to allow funds to satisfy their obligations to transmit shareholder reports. This is a profoundly different approach from the SEC’s decades-old electronic delivery guidance, established principally through interpretive releases issued in 1995, 1996 and 2000, which generally requires notice, access and evidence of delivery. Subject to conditions in the Rule, funds will now be able to make their reports and other required materials accessible at a specified website address and send investors a paper notice of each report’s availability by mail. Each notice provided to investors under the Rule is required to explain how investors may access the report and request paper copies. Funds will be permitted to satisfy their delivery obligations for shareholder reports by mailing reports in paper, delivering reports electronically to investors who have chosen this method under the current electronic delivery guidance, providing notice and website accessibility under the Rule, or a combination of the two. Of course, investors may still elect to receive all reports in paper that are sent by the fund complex or forwarded by a financial intermediary, or request to receive particular reports in paper.
The Rule provides for an extended transition period that is intended to better inform current investors of the coming change and better enable them to easily continue to receive paper reports if they wish.
The main conditions of the Rule include:
Request for Comment on Enhancing Fund Disclosure and Intermediary Processing and Delivery Fees
The SEC is seeking input, particularly from individual investors, on enhancing fund disclosures. The release requests feedback directly from individual investors, academics, literacy and design experts, market observers, and fund advisers and boards of directors on the design, delivery and content of fund disclosure, including shareholder reports as well as prospectuses, advertising and other types of disclosure. The SEC is also soliciting feedback on investor preferences for means of delivery and how to make better use of current technology, including how to make disclosure more interactive and personalized.
With the adoption of the Rule, the SEC is also considering more broadly the overall framework for the processing fees that broker-dealers and other intermediaries charge funds. These fees are charged in connection with forwarding shareholder reports and other materials to beneficial shareholders under current rules of the New York Stock Exchange and other self-regulatory organizations. The scope of requested comments includes an assessment of processing fees, transparency of these fees, remittances received by financial intermediaries for delivery of fund documents, and whether the structure and level of processing fees should be set by another entity. The SEC will seek public input on the two requests for comment until October 31, 2018.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.