Future of Investing

Excessive fees plague fund reporting; will new rules fix the problem?

  • Funds pay an estimated $100m each year for shareholder reports to broker-held accounts.
  • The SEC’s proposed rule constitutes its most significant change to investment company reporting in 10 years.

Email a Friend

Excessive fees plague fund reporting; will new rules fix the problem?

An Investment Company Institute (ICI) survey found that funds pay 120 percent more to deliver shareholder reports to investors that own funds through brokerage accounts than those who bought funds directly from fund companies. Adoption of digital delivery methods and updated regulation should increase efficiency and transparency in the reporting process, and also lower costs.

Under the current system, funds — and, by extension, their shareholders — pay an estimated $100 million each year for shareholder reports to broker-held accounts.

Currently, brokers are tasked with handling the shareholder reports, and funds reimburse the brokers for the delivery costs. Most brokers use a single delivery vendor, Broadridge Financial Solutions. While the brokers and Broadridge negotiate the fee, the funds pay the bill. Under this system, there is no incentive to negotiate the fee lower than the maximum fee permitted.

The analysis by the ICI was conducted amid the backdrop of the SEC’s modernization of the Investment Company Act of 1940, as a request to tweak the regulatory and fee structure for mutual fund shareholder reports.

“Under Broadridge’s interpretation of applicable NYSE processing fees, ICI estimates that funds would realize no net savings in NYSE processing fees from proposed rule 30e-3,” the ICI stated in a May 23, 2016 meeting with SEC officials discussing the proposed rules.

Rule 30e-3 is the clause addressing shareholder reports in the SEC’s proposed set of changes.

from the SEC

Updating a process from the ‘40s

The Investment Company Reporting Modernization, Proposed Rule is a set of proposed rules under the Investment Company Act of 1940 which would significantly expand the information reported by registered investment companies.

Among the proposed rules are changes to the structure of the data the SEC receives from mutual fund companies. More structured data will allow the SEC to better analyze funds’ compliance and exposure to risk. In addition, the proposed rules call for publishing shareholder reports online rather than printing it on paper.

According to PwC, the SEC’s proposed rule constitutes its most significant change to the reporting regime for registered investment companies in at least a decade.

Challenges ahead

Complying with the proposed rules will not be easy for investment companies. Therein lies an opportunity, though.

“The most difficult part of compliance will be the development of appropriate technology, processes, and procedures,” noted Nathan McConarty, assistant vice president, investor services at Browns Brothers Harriman in a market commentary.

According to a Deloitte report, among the challenges investment companies face when trying to adjust to the proposed changes are interpreting inconsistencies between the current and proposed rules, developing appropriate data sourcing and aggregation processes, and increasing resources to accommodate compressed and increased filing timelines.

Deloitte asserts that while the challenges might be daunting, the proposed rule offers an opportunity to create centralized databases, automate reporting and increase internal and external oversight. Capitalizing on these opportunities will provide funds with long term benefits and ultimately make investing cheaper to the end investor.

Photo credit: crazyoctopus via VisualHunt / CC BY-ND

0 comments on “Excessive fees plague fund reporting; will new rules fix the problem?”

Future of Investing

AT&T’s Cricket Wireless strikes partnership with Acorns to bring investing to its subscribers

  • Cricket Wireless and Acorns are teaming up to bring investing to more people.
  • With the Acorns app pre-installed on new handsets, Cricket customers also receive monetary incentives to use the investment app.
Zachary Miller | August 06, 2021
Future of Investing

‘Lots of music involved, too!’: A day in the life of Chidi Achara, CCO of Stash

  • Consumer interest in investing is taking hold. And for investing apps, that means sharpening their marketing game to reach their target audience.
  • Leading Stash’s marketing initiatives is Chidi Achara, chief creative officer at Stash. Here’s a day in his life.
Rivka Abramson | August 02, 2021
Future of Investing, Member Exclusive

Behind Betterment’s partnership with Zenefits to give SMBs access to retirement planning

  • Betterment’s technology led 401(k) provider teamed up with HR software company Zenefits.
  • Zenefits SMB customers will gain access to Betterment’s retirement planning and financial wellness offerings.
Rimal Farrukh | April 21, 2021
Future of Investing, Member Exclusive

‘We put our skin in the game’: How Clearbanc is rethinking funding for growing startups

  • Last month Clearbanc released ClearAngel, a program that acts as an automated angel investor.
  • Clearbanc’s revenue-based model speaks to the increased need of startup funding.
Rivka Abramson | March 04, 2021
Future of Investing, Member Exclusive

‘Our research shows that consumers find investing to be intimidating’: Marcus by Goldman Sachs debuts automated investment service

  • Goldman Sachs debuted its flagship digital investment platform Marcus Invest.
  • The offering requires a minimum account balance of $1000 and charges an annual fee of 0.35 percent.
Rimal Farrukh | February 19, 2021
More Articles