The Securities and Exchange Commission voted Tuesday on initiatives to improve the experience of those who invest in mutual funds, ETFs and other investment funds. 

In three related actions, the Commission provided a new, optional “notice and access” method for delivering fund shareholder reports that have been historically printed and mailed; invited investors and others to share their views on improving fund disclosure; and sought feedback on the fees that intermediaries charge for delivering fund reports.  

These actions are part of a long-term project, led by the Division of Investment Management “to explore modernization of the design, delivery, and content of fund disclosures.”

In the first of three releases, the Commission adopted new rule 30e-3.  It 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 online, free of charge, and sending investors a paper notice of each report’s availability by mail. Investors who prefer to receive the full reports in paper may—at any time—choose that option free of charge. Funds may rely on the new rule beginning no earlier than January 1, 2021.  

The SEC’s Division of Economic and Risk Analysis estimated that investors collectively will reap cost savings of almost $1.5 billion over the next decade.

That initiative, as simple as it may sound, has been contentious since it was first debated in 2015. Despite support from the fund industry, some investor advocates fretted any effort that could complicate or limit access to documentation. 

Advocates for the change, including the Investment Company Institute, say that the disclosure change has the potential to save fund shareholders fees that are passed along. 

ICI praised the Commission’s vote to approve rule 30e-3, “which will modernize fund shareholder report delivery and benefit 100 million US fund shareholders,” in a statement. “Under the rule, funds can deliver shareholder reports by making them publicly available on a website, free of charge, and mailing investors a paper notice each time a new report is available.”

The Independent Directors Council also praised the vote. “This move to allow default web-based delivery is a boon to fund shareholders, saving them extraordinary costs incurred under the antiquated system of paper-based delivery in place until now,” said Managing Director Amy Lancellotta. “It preserves important choice for investors who prefer to receive paper disclosures. The change heralds great benefits for the environment, on which the paper-based system exacted steep costs—with a forest of trees the size of Manhattan cut annually to support that regime.”

Commissioner Kara Stein, however, voiced concerns. 

 “If you want the paper version of the full shareholder report, you will now have to take an active step to request paper delivery.”

“The point is: you have to do something that you didn’t have to do before,” she added. “The problem is that this extra step is a hurdle for investors, and may be one that, for some investors, is just too high. Or, to frame it differently, will investors proactively choose to leap over the hurdle to get the information they need to make informed investment decisions?”

Rule 30e-3, Stein said, “shouldn’t be simply about delivering documents.”

“I hope shifting from the default does not end badly for investors,” she added. “That is why I have struggled with this rule for some time. In some ways, it disregards the goals of the Commission’s past disclosure effectiveness initiatives by potentially making it more difficult for investors to receive the information they need.”

Stein did agree, however, to support a pilot program for assessing the proposal. 

Commissioner Michael Piwowar said he was “delighted” by the proposal and said it epitomizes the phrase “better late than never.”

“How many forests have been felled—how many woodland creatures have lost their homes—in order to supply the millions of reams of paper required to produce registered investment company shareholder reports?” he said. 

The rulemaking will, he said, “at long last, finally allow the mutual fund industry the option to embrace basic technological advancements that have been in common use for at least two decades.”

The proposal “is sure to improve the usefulness of these disclosures for investors,” he added. “In a world where ‘zooming in’ and using ‘CTRL+F’ are tools as integral to everyday life as bifocals, we would be doing a disservice to investors by ignoring their relevance for reviewing disclosure.”

So, Piwowar rhetorically asked, why has such a proposal been so long in the offing?

“The answer, unfortunately, illustrates the immense power of politically connected special interest groups in Washington, D.C.,” he said, explaining that Rule 30e-3 drew immediate backlash “from the timber lobby and—wait for it—the National Association of Letter Carriers.”

“In other words, we have been drowning investors in paper and making them pay for that privilege in fees, all to serve the interests of a relatively small number of well-connected union bosses,” he charged.

Beyond the disclosure delivery change, the Commission also announced that is seeking public comment on additional ways to modernize fund information. Investors, academics, literacy and design experts, market observers, and fund advisers and boards of directors are invited to visit www.sec.gov/tell-us to provide feedback on how to improve the experience of fund investors. “This input will help inform the Commission on how to modernize the design, delivery and content of fund information, including how to make better use of 21st century technology to provide more interactive and personalized disclosure,” an SEC statement said.

Finally, the Commission is seeking comment 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.

The Commission requests that commenters provide feedback on the three requests by Oct. 31.

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