_{This article first appeared in Ignites on February 2, 2023.}

The asset management industry and regulators are in complete agreement on one issue: We need to improve communications with investors.

Millions of retail investors have entered financial markets in the past decade, some with little experience in — and often little appetite for — poring through complicated disclosures. As a result, regulators are concerned that many investors are not getting the information they need to make good decisions.

In October, the Securities and Exchange Commission adopted a rule aimed at addressing these issues by modernizing shareholder reports of mutual funds and ETFs. The rule, which funds will have to comply with by mid-2024, will overhaul the way fund companies deliver information that investors say is important to monitoring and evaluating their investments.

Under the new framework, fund providers will replace the existing regime of lengthy shareholder reports with streamlined summary reports called tailored shareholder reports. These reports are far shorter and more user-friendly than the existing annual and semi-annual shareholder reports, which average more than 100 pages. According to the SEC, they are designed to be “concise and visually engaging” and summarize information on expenses, performance and portfolio holdings, making the data more salient to the aver-age investor.

The SEC has approved a “layered” approach to disclosure, with summary information upfront and more in-depth information online. The SEC is strongly encouraging fund companies to incorporate graphic design elements and interactive features to make re-ports more engaging and effective.

Although fund companies applaud the SEC’s goals, they are concerned about the implementation complexity and finding the right path forward. Under the new rules, they will have to produce a tailored shareholder report particular to each share class for every fund. The reports must be tagged in the iXBRL format and filed in the SEC’s Edgar database. For fund companies with large numbers of funds and share classes, that could mean creating, tagging and filing thousands of individual reports.

This would involve significant costs, which is why firms are starting to think about ways to lower the expense through steps like automation, reducing page counts and combining physical mailings.

It may also require new design and user-experience expertise to drive a better digital experience for investors, which could translate to an easier path for e-adoption, while also generating a new avenue for asset managers to differentiate their product capabilities.

For over 40 years, Broadridge has partnered with asset management clients on a series of regulatory initiatives to make communications more engaging while also helping drive greater cost efficiency and operational process improvements. Based on that experience, I believe adapting to the new SEC reports can be a catalyst for leveraging digitization even further to drive progress on a range of critical asset management industry goals, including client engagement, brand differentiation and greater use of electronic delivery.

The good news is that fund firms are already leaders in digitization. In fact, asset managers are outpacing other financial service firms in adopting such technology, according to Broadridge 2022’s Next-Gen Technology Survey. They are investing millions of dollars to replace manual and paper-based processes in operations, distribution and reporting with efficiency-enhancing digital communications systems. A digital experience is also seen as a means of strengthening client relationships by enriching and personalizing client communication and reporting.

However, producing annual and semi-annual reports for hundreds or even thousands of funds and share classes will require an even greater focus on digitization, including a fully digitized process for data capturing, reporting and report generation. Revamping the reports with graphic features and interactive elements will enrich shareholder communications by customizing content and allowing fund providers to link to additional information and materials that inform and educate shareholders.

An effective and efficient regulatory communications platform also provides a powerful new tool for brand development. Fund companies often tell us that they invest huge sums to create distinct brands that stand out in today’s ultra-competitive marketplace. Compliance with new rules provides an opportunity to support these efforts, differentiate products and services, and enhance client relationships.

For example, fund companies will be able to leverage the tailored shareholder reports to enhance their branding, as well as add commentary with information about the fund and management company.

In these ways, tailored shareholder reports can advance the critical goal of improving investor communications and have the potential to transform them, integrating reporting and marketing to create a potent new form of engagement in investor communications. It also represents a giant step by the industry toward achieving the critical goal it shares with regulators: deepening engagement and creating a better experience for a changing investor base.

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