Turns Out Print Is Still Hanging on by A Thread
Let's call it now. The SEC cannot afford to get it wrong on Rule 30e-3, which will enable asset managers to make the default distribution method for investor reports electronic rather than printed and mailed. The commission recently opted to delay the vote on this proposal, which is surprising because it's really a no-brainer. Rule 30e-3 will be a win on a number of fronts. It will have a tremendously positive impact on the industry's carbon footprint. It will make it easier for investors to search annual reports for the information they care about. And, it will set the stage for a digital revolution in how investors evaluate, engage and act on information about their investments.
Instead of passing this through as part of its modernization initiative, the SEC has punted on a rule that truly represents a digital step forward for our industry.
In the interest of full disclosure, the company I founded 25 years ago automates regulatory and investor reporting for the asset management industry. The implications of this new rule are completely aligned with our vision of transforming data into knowledge and delivering it to the world. We were and still are excited to see that day approach in the form of Rule 30e-3. In fact, a few years back I wrote a column entitled Print Is Dead that essentially made the case that using paper as the primary format for interacting with investors falls far short of the capabilities of the digital age.
In short, my commentary was a warning for our industry. Collectively, we are failing our investors by locking up important information about investments and their associated costs in hundreds of pages of printed materials that we mail to investors once or twice a year. The persistence of paper reports just isn't consistent with the direction of every other major trend in our industry—or any industry for that matter. If trade data can be available to traders in microseconds, why should investors wait six months or more to get important information about their investment portfolio? Availability is the prerequisite of true transparency, isn't it?
The SEC still has the opportunity to address this issue in its modernization initiative and truly nudge the industry closer to a digital future. The commission cannot allow itself to be swayed by loud protests from lobbying interests who attempted to stir up all kinds of fear, uncertainty and doubt about what digital distribution of investor reports would mean. Those dissenting voices claim investors will be disenfranchised. They say digital reporting would open up investors to increased cyber security risks, and they say the change would increase costs for investors who would have to shoulder the burden of printing their own reports.
In each instance, those claims and concerns are warrantless. But that hasn't stopped this contingency from persisting and putting this important pivot to a digital future at risk. Perhaps more bizarre than the arguments that lobbying groups have waged is who these voices of discontent represent: the paper industry, the printing industry and representatives from letter-carrying organizations. If you read the comment letters these groups submitted, their impassioned pleas to the SEC feel hollow, self-serving and under informed. Yet, they seem to have momentarily gotten the SEC to back down.
The fact is digital delivery of a communication is nearly always better—whether it's an invitation to a party, or whether it's informing you on the status of your portfolio. Digital communication gives people more options for consuming and acting on the information they receive.
While the SEC still can still take this important first step in digitizing investor communications, the responsibility for true change falls on us as an industry. And the end goal should go well beyond making downloadable PDFs of annual reports available to investors. The arch of this modernization transformation bends toward putting transparency and control into the hands of the investor.
To be wedded to the idea of transparency, we must also be committed to the notion of frequency. For example, if I'm totally transparent and honest with you every 10 years, my level of honesty is undermined by my lack of frequency—or availability of information. These two characteristics—honesty and availability—must be married to generate true transparency.
That is why a shift to digital reporting is such an important start to our journey. Imagine what will come next, once we move beyond digital distribution of information to make that information viewable and actionable in real-time. We'll be able to give investors the power to closely watch the dynamics of their investments and adjust their strategy based on portfolio risk, style drift, assets under management and fee structures, among other things. All of these investment characteristics change frequently, and giving investors insight into these aspects of their investments once or twice a year just isn't good enough.
The following two paragraphs I wrote in the beginning of 2014 about the risk our industry faces if we fail to move beyond print and embrace the promise of transparency and frequency that the digital future offers. It's a message that is even more relevant today:
"The lack of timely, useful information will drive away investors who want real-time access to make informed decisions. We must remember the investor's changing needs and expectations. We must lead through the changes that come at us, treat them as opportunities to innovate for our customers and leapfrog our competitors, and have the audacity to envision true transparency.
"We have the technology to start immediately. We must stop physically printing pieces. We must replace tedious typesetting and print processes with new, flexible automated processes that transform data into knowledge instantaneously. We must challenge ourselves, as a community and as a market, to radically reduce the time between data production and delivery...Let's just call it. Print is dead."
Turns out print it still hanging on by a thread. In the case of Rule 30e-3, we are relying on the SEC to be the agent of change. I believe the commission will still vote yes on this. It's just a matter of time. But ultimately it is up to us as an industry to transform our business and set the stage for a digital future. Our investors are counting on it.