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Enhancing Investor Experience: Creating Shareholder Reports in Compliance with the SEC’s Latest Ruling

Evamarie Augustine 14 September 2023

The Tailored Shareholder Report

Attention mutual fund and exchange-traded fund (ETF) managers — if you haven’t started thinking about the U.S. Security and Exchange Commission’s (SEC or the Commission) recent ruling to modernize shareholder reports, you’re behind schedule. The 18-month window for the new mandate — which contains enhancements to make the reports “visually engaging” — has already begun.

By July 24, 2024, mutual fund and most ETF semi-annual and annual reports will be condensed into a clearer, easier-to-read, “tailored” shareholder report — containing only the share class and investment information that is pertinent to the investor.

What Is the New “Tailored” Shareholder Report?

In order to provide shareholders with information about their investments in an easier-to-read format, the SEC unanimously adopted new rules in October 2022 that will significantly alter the presentation of current shareholder reports. The ruling, designed to make the reports more user-friendly, moves much of the more technical information online, separates reports by share classes, and is designed to be significantly shorter than the current version. The reports will need to include specific information in a required order, be written in “plain English,” and only contain information about the single share class owned by the investor.

Mutual fund and ETF companies will have until July 24, 2024, to comply; fund complexes can comply before this date, but they will need to have it completed by the compliance date or risk SEC penalties.

Key Changes for Fund Managers

  • An individual report is needed for each fund and each share class. The bundling of funds is no longer acceptable.
  • The tailored report contains mandated sections and must be in a required order.
  • Funds can still include narrow-based benchmarks but must now also include a “broad-based” index that represents the overall applicable domestic or international equity or debt markets.
  • Rule 30e-3 no longer applies; the shareholder report must be either mailed or, if elected, electronically delivered.
  • Information in shareholder reports must be tagged using Inline XBRL structured data language.
  • Representations of fees in marketing advertising must be consistent and current with relevant prospectus fee table representation.
  • Fund companies must comply by July 24, 2024.
  • The new rules allow fund companies to communicate with shareholders in a more clear and concise manner.

Implementing the New Shareholder Reports

The SEC’s goal in shortening the shareholder report is to have key information highlighted for investors. In addition, the tailored report will provide fund companies a way to improve investor engagement through a format that is simple and easy to read.

With only a few pages to deliver the fund’s message, it is more important than ever to create visually engaging information with clear and jargon-free copy.

How can fund companies interpret the new rules and still deliver their message? Key points to remember include:

  • Keep sentences short.
  • Use an active tone and limit passive speech.
  • Leave the jargon behind.

Fund companies can build trust by writing in plain English. It doesn’t matter if the audience is retail shareholders or sophisticated investors. Limiting unfamiliar words and communicating better with readers is always best practice.

Pictures and charts can tell a story in a way that words sometimes cannot. For example, when visually showing contributors and detractors in a chart instead of in a verbose response, the information is easier to understand.

Marketing Opportunities and Responsibilities

In its ruling, the SEC also looked at marketing advertising for mutual funds and included additional responsibilities that must comply. In addition to new rules for shareholder reports, fund companies will also need to ensure that fees and expenses in advertisements and sales literature are presented in a manner consistent with relevant fee table presentations in fund prospectuses. This includes any business development company advertisements that contain fee and expense information.

What Should Fund Companies Do Now?

  • Review current processes and procedures.
  • Implement a plan of action and begin testing.
  • Consider outsourcing.

Key milestones and deadlines to be aware of:

The SEC has granted fund companies an 18-month transition period that allows funds time to adjust their shareholder report operations and processes to the new rules. Key dates include:

Jan. 24, 2023: The rules for the tailored shareholder report go into effect.

Jul. 24, 2024: The compliance date for the rules to be implemented.

Fund companies will still be required to deliver annual/semi-annual reports to shareholders within 60 days of the reporting period; by day 70, the report will need to be filed on Form N-CSR and tagged in XBRL.

How Can Copylab Help?

The ruling is expected to increase short-term costs for fund companies, given that fund companies can no longer bundle shareholder reports and new tagging requirements will create an extra layer for review. However, the SEC anticipates reduced fund expenses in the long term due to decreased printing and mailing charges. And while the new reporting format will require fund companies to pivot from the current process, the result will be a deliverable allowing improved engagement with shareholders.

As fund companies try to negotiate the intricacies of the new tailored shareholder report, outsourcing should be a key consideration. The sheer volume of reporting, cyclical nature, and tight deadlines lend themselves to a strategy that involves outsourced writers. And at Copylab, we help some of the biggest names in asset management refine and clarify their fund commentaries, white papers, and marketing collateral. Our technical, investment writing, and editorial capabilities can help firms drive efficiencies and cost savings for vital, deadline-driven processes such as shareholder reports.