Getting 30e-3 Wrong Again

Date: October 31, 2017

paperlessIs Rule 30e-3 back? Could we, in the mutual fund industry, actually be poised to move to a (mostly) paperless distribution of shareholder reports? Not so fast, unfortunately.

I am sure that we all remember our crazy mixed feelings when the SEC reporting modernization proposal first came out in May 2015: a bold proposal that would require much from the industry, but would shepherd in some long-asked-for reforms as well. I remember taking that first read-through and being blown away at how much additional work the regulators were expecting the industry to do – with the significant increase in the amount of data to be reported and the frequency of reporting that would be required for Form N-PORT. I remember thinking that the amount of work that we would have to do as an industry would be significant and that the cost was practically unmeasurable at that point in time (despite the SEC’s attempt to calculate it at a whopping $445M).

I also remember finding hope within those 510 pages and thinking that there was some trade-off, as my colleague Paul Soltis wrote about in his blog, The Big Trade Off. I found hope along with others in the industry when I read further and in more detail; the SEC indicated that they would rescind funds’ requirements to file Form NQ and that funds could fully meet notification requirements via electronic distribution of shareholder statements as opposed to printing and mailing. We all knew that it was imperfect and that the trade-offs were not balanced, but we were happy that we got something. Or so we thought.

Fast forward to October 2016 and the publication of the final rule. It was at this point that we learned rather quickly that there was no equal trade-off. It was clear that Form NQ was simply being replaced by Part F and that political pressures had caused the SEC to remove 30e-3 from the final rule. As we entered 2017 to begin the critical planning for how we would address this major industry challenge, it looked as though we would get nothing in return. We all hoped that with the new Presidential administration and expected leadership change at the SEC, thought to be focused on deregulation, that a re-visitation of Rule 30e-3 would eventually happen, but there was certainly no guarantee. I admit I was skeptical that this would come up again any time soon given that the SEC has been so focused on capital formation and less on the servicing side of our industry, but I certainly hadn’t lost all hope. That changed on October 16, 2017.

The Investor Advisor Committee*, charged with providing advice to the SEC on matters such as these, met most recently on that date and a “Discussion Regarding Electronic Delivery of Information to Retail Investors” was a was major topic. Perhaps they agreed with Confluence CEO Mark Evans that “… we are failing our investors…” by insisting on “… paper reports (which) just isn’t consistent with the direction of every other major trend in our industry…”. Perhaps they began to feel the pressure from the industry to revisit this piece of the proposal as a result of funds soon having to realize the awesome costs of completing and filing the new form N-PORT in 2018. However noble the reasons for their raising this for discussion, it appears as though they will be content to get it wrong again.

At the meeting, the group discussed the results of research aimed at understanding what leads people to read fund documents and what that means to the creation and distribution of investment company documents. Based on this data, the committee is recommending that the SEC create a “layered approach” to report dissemination as a compromise between those opposed to negative consent (where electronic delivery would be the default absent an opt-out by the investor) and those in favor of electronic delivery. This “layered approach” would do the exact opposite of what Rule 30e-3 was meant to achieve; creating more work and, likely, costing more. With this recommendation, new reporting will need to be produced in a manner similar to a fact sheet or summary prospectus which will still need to be mailed to investors. Leave it to Washington, DC to find a way to complicate what should be a pretty simple decision.

Unlike some of the print companies and lobbyists who are actively opposing the rule, Confluence has no vested business interest in the outcome of this debate and what the final rule ultimately looks like. That said, as someone who is passionate about advancing our industry into the future and about making smart environmental decisions, I am surely disappointed. I can’t say that I am surprised, however. Hopefully, the SEC rethinks this once again and that in the end (whenever that is), the industry gets what it wants from this rule. Let this be a reminder to us all that, despite the technological advancements that we have collectively made in reaction to the requirements of Form N-PORT, it is not the government’s responsibility to drive innovation, it is ours. Let our disappointment of something like this keep us with our eyes squarely on the innovation ball and focused on doing what is right for funds and shareholders without the regulators’ prompting. After all, that is what the shareholders are expecting from us.

* Section 911 of the Dodd-Frank Act established the new Investor Advisory Committee to advise the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank Act authorizes the committee to submit findings and recommendations for review and consideration by the Commission. (

To learn more about 13f-2 watch our webinar replay Part 1: Unpacking the SEC's New Disclosure Rules for Shareholders
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