ICI Recommends SEC Create Summary Shareholder Report

A test of the summary report found more than 90% of mutual fund investors agreed it was enough to help them stay informed and was a document they would be more likely to read than current reports.

The Securities and Exchange Commission (SEC) adopted a new rule, 30e-3, aimed at improving the experience of investors who invest in mutual funds, exchange-traded funds (ETFs) and other investment funds.

The rule permits asset managers to deliver shareholder reports by making them publicly accessible on a free website and sending investors a paper notice of each report’s availability via mail. If an investor prefers to continue receiving shareholder reports by mail, they may do so. The new rule goes into effect January 21, 2021.

The SEC is also asking the public for their thoughts on how the delivery of fund information could be modernized.

In a comment letter, the Investment Company Institute (ICI) said it supports recent efforts made by the SEC to modernize fund disclosure and recommends that the Commission continue to help improve the investor experience for fund shareholders by proposing a summary shareholder report. ICI recommends that the Commission consider proposing a rule creating a new, optional summary shareholder report with key information, presented in a specific order to mirror the Commission’s design of the summary prospectus. This format would make the report easier to understand and help shareholders compare funds.

Specifically, ICI recommends that the summary shareholder report should include:

  • performance highlights;
  • total return;
  • expenses;
  • graphical presentation of portfolio holdings;
  • information on operation and effectiveness of its liquidity risk management program over the past year; and
  • instructions on how to access the full shareholder report.

To help inform its comments to the SEC, ICI created a prototype of the summary shareholder report and tested it using a nationally representative survey that included more than 1,200 mutual fund shareholders. More than 90% of these mutual fund investors agreed the prototype summary shareholder report was enough to help them stay informed and was a document they would be more likely to read than current reports. Similar numbers agreed that the more concise document made it easier to compare funds. The prototype and survey results are available on ICI’s website.

In a recent speech SEC Commissioner Kara Stein pushed for more investor education and said investors should be able to easily compare financial products.

In its letter, ICI also made the following suggestions:

  • The SEC should modernize the delivery of fund prospectuses. Providing firms with the flexibility to choose to send investors a notice informing them that a summary prospectus or a full-length prospectus is available will result in significant cost savings for fund shareholders, align with shareholder preferences, and be consistent with Rule 30e-3.
  • The Commission should encourage information being displayed in a user-friendly way by allowing funds to show additional information through smartphone applications; maintaining technology-neutral requirements; and considering starting a pilot that would allow funds to develop more creative approaches to disclosure with any necessary safe harbors.
  • Customized calculations of fund expenses should not be compulsory. A requirement for individualized expense information would be logistically complex and very costly, and is unnecessary because of calculators and other resources already available for investors.
  • Standardized risk measures or risk ratings are unnecessary and could do more harm than good, as risk is inherently complex and multifaceted. ICI strongly urges the Commission to neither mandate nor create standardized risk measures or risk ratings. Current fund disclosures adequately depict risks associated with investing in the fund for investors.