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.
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