By Samantha Syska
The New York Stock Exchange (“NYSE”) has contributed their two-cents in response to a 2015 Securities and Exchange Commission (“SEC”) rule proposal that would permit firms to default to e-delivery for shareholder reports. Turns out the SEC proposal is pretty controversial amongst the industry (shocker). Proponents for electronically delivering reports are saying cut delivery fees and save the trees, while the naysayers are saying hold up, we need some clarification on the proposal.
Major industry players are questioning whether this rule is actually going to save firms dollar bills. Broadridge (the king of document delivery in the industry) has estimated the proposal to result in a fee increase, somewhere around the 120% ballpark. Cue the freak-out from funds and investors! Currently, funds pay a fifteen-cent report fee when shareholders receive their reports in hard-copy, via snail mail. When investors opt for e-delivery, funds pay the fifteen-cent report fee plus a ten-cent preference management fee. But wait, there’s more! If the SEC proposal were to move forward as is, Broadridge will institute a third fee – a “notice and access fee” – for shareholders to access proxy materials not included with their reports already sent via email. So what was that about saving money on printing and postage?
In an attempt to prevent funds from charging investors increased fees, the NYSE is offering a saving grace for the SEC rule by proposing a few amendments. With a few tweaks, the rule would actually be really great for funds and save shareholders some serious bucks on delivery fees. The exchange drafted a proposal to the proposal, that would set maximum processing fee rates brokers could charge funds for e-delivering shareholder reports. Friends in the industry, such as ICI, BlackRock, Eaton Vance, Invesco, MFS and T. Rowe Price, rather like this idea and are urging the SEC to adopt these amendments.
Whether the SEC adopts the amendments proposed by the NYSE is TBD, but let’s consider the implications on investor protection as governed by the Investment Company Act of 1940. Fund companies are required to disclose the composition of fund fees, including but not limited to, the costs of marketing and selling the fund, advertising, printing and mailing, and compensation for brokers. The SEC sets forth and governs the disclosure requirements for fund companies in an attempt to keep investors fully informed. Whether investors read the finely printed disclosures is up for grabs, but it’s a step in the right direction for investor protection, eh?
Assuming the default delivery method for shareholder reports changes for better or for worse, there certainly needs to be disclosures surrounding the e-delivery fees. Protect the people! Disclosure of these fees would at least provide investors with the information needed to select an alternative delivery method if they so choose. Furthermore, these disclosures shouldn’t be lumped into some larger, arbitrary “fund fee,” but rather in an itemized manner that is readily available to investors. Tricks are for kids, not for investing adults, so let’s make sure we’re continuing to play fair. K, SEC?
Student Bio: Sam is a Lead Note Editor on the Journal of High Technology Law. She is currently in her third year at Suffolk University Law School. She possesses a B.S. in Business Management from Roger Williams University.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
