_{This article first appeared in Ignites October 3, 2023.}

The Securities and Exchange Commission’s new rules for tailored shareholder reports transform the information that retail investors rely on to monitor their investments in mutual funds and ETFs. The rules also pose implementation challenges and opportunities for asset managers and administrators. 

For that reason, firms that approach the TSR as simply a next-version shareholder report are making a mistake and risk missing out on important opportunities and efficiencies. Firms that treat the TSR as a truly revolutionary step in investor communication will maximize the benefits, minimize costs and avoid compliance delays.

With the July 2024 effective date fast approaching, most firms have shifted into high gear while others have just begun. Regardless of whether firms are implementing early or late, all firms can benefit from best practices. We have compiled a list based on working sessions with more than 100 fund company executives, operations heads, marketing leaders, technologists and others.

1. Ensure the Working Group Has the Right Scope

Because TSRs touch many functions across an organization, implementation working groups need broad representation, including personnel from legal, compliance, finance, operations, technology and marketing.

Effective working groups should have a broad enough mandate to oversee all planning necessary to enhance investor engagement and brand image. To that end, plans should lay out how the firm will incorporate graphic design elements and interactive features into the TSRs with the goal of serving their clients and building both client and advisor relationships.

One critical best practice involves setting the right scope. The TSR rules provide opportunities to automate and reduce costs in steps and processes that have long been ripe for improvement. Working groups looking to automate the end-to-end shareholder report production process are finding meaningful cost savings. For example, digital print-on-demand can reduce shipping and postage costs by upwards of 20% for some firms.

2. Complete a CUSIP Share Class Analysis

The new rules require funds to provide a TSR for each share class of a fund. For many fund companies, this is a major cost and challenge; the production requirements for some funds could increase by a factor of five to 10.

With the effective date fast approaching, most working groups should have completed their analysis of share classes for the purposes of getting their arms around the extent of the required changes. Asset managers who haven’t yet taken this step are risking higher implementation costs downstream and compliance delays.

3. Map Out Current and New Workflows

With the CUSIP share class analysis in hand, working groups should complete a full mapping of internal work flows to identify all required changes to existing processes. This is where process reengineering comes in.

The rules provide the opportunity to address pain points by automating potentially challenging processes such as iXBRL tagging, web hosting and Edgar filings. Best practice efforts look beyond their own walls and identify areas where external resources and partners can be integrated into a fund’s reengineered processes.

4. Consult with Outside Experts

Working groups are meeting with outside experts and technology services providers such as Broadridge to understand how the industry is implementing the rules and educate themselves on available resources. Funds and administrators should insist on detailed responses to their questions about day-one readiness and support, as well as estimates of end-to-end process cost efficiencies.

5. Hone the Design

When it comes to designing the new reports, the earlier the better, because the template can drive the process.

Meeting the minimum design requirements of the new rules is straightforward enough, but the best working groups are aiming higher. They are designing the reports to better capture investor interest and put their brand in a great light. The switch to the new format is an opportunity to introduce interactive elements and other features that can help draw investors into a deeper level of engagement with the fund. 

Funds will achieve the strongest results by combining these best practices with the right mind-set. Rather than treating TSR implementation as a compliance headache, many funds are approaching it as an opportunity to overhaul legacy processes and practices.

The effort to modernize shareholder reports is spurring innovations in how key information is presented and consumed. After the transition, fund providers will be positioned to deliver interactive features, greater personalization and more convenient ways to access information, such as by mobile device — things that were not possible with large and cumbersome printed reports delivered by mail.

As with many new rules, regulators set a framework of requirements, but they don’t provide a detailed roadmap for what it takes to make them work for each firm and client on the ground. Best practice working groups and private sector innovators are filling in the myriad details. Taken together, TSR rules and implementation efforts will create vast new efficiencies and deeper engagement with investors.

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