TSR Report Card: Top Grades for Implementation, Predictions for “Day 2”

The implementation of Tailored Shareholder Reports (TSR) last year could be just the start of a broader transformation of financial reporting and fund disclosures to a more modernized process that better meets the needs of retail shareholders and younger investors accustomed to more digital and dynamic communications. 

That’s the consensus of a panel of four industry experts that took part in a recent webinar on TSR. With TSR implementation now almost a year in the rear-view mirror, these experts gathered to assess how the transition went for both the industry and investors, and to look to the future with a view on what comes next.

In the first 12 months of tailored shareholder reports, the industry created more than 64,000 reports and distributed close to 1.2 billion documents to shareholders—all without any major hang-ups. Despite that record of success, the panelists agree that even bigger opportunities could lie ahead.

“The runway to implement TSR was very short,” said Harsh Choudhary, Vice President of Product Management for Broadridge. “With only 18 to 20 months to meet the new requirements, many firms took the approach of checking the boxes from a compliance standpoint. But what we see now is that there are still huge opportunities to take it to the next generation of TSR.”

In many ways, innovation in communications has outpaced changes in financial reporting, and there is no doubt that TSR was a big step in keeping pace.  “We now live in a world in which people want information as quickly as possible with minimal effort,” said Scott Ostrowski, Head of Fund Administration, U.S. Bank Global Fund Services. “The switch to TSR provides a way to pull shareholders into the website and deliver a dynamic experience, which is really going to prove beneficial to investors.”

However, Katie King, a partner at PWC who heads up parts of the firm’s regulatory efforts, seemed to sum up the belief of all the panelists when she suggested that the infrastructure built to accommodate TSR will serve as a springboard to even more innovation. “I’m personally excited about what I see as a big opportunity to drive even greater efficiency from what we’ve already accomplished with tools like artificial intelligence,” she said.

Rating the Industry’s Performance on TSR

The experts participating in the webinar gave the industry an average rating of eight out of 10 for TSR implementation, with scores ranging from nine to 7.5. The panelists said their organizations received virtually no complaints from shareholders about any issues related to TSR and no comments from the SEC about any problems. “I believe we were successful because of senior management's commitment, recognizing this would be a collaborative effort and ensuring that the right resources were allocated to the initiative,” says Raffaela Sinopoli, Senior Manager at Franklin Templeton in Global Fund Administration and Oversight.

Scott Ostrowski of U.S. Bank said the industry deserved credit for successfully taking on significant new administrative burdens. He noted that requirements mandating firms to create core financial reports at the share class level, rather than the fund family level, “more than doubled the amount of output that we had produced.”

Harsh Choudhary of Broadridge agrees that the industry warrants praise for its performance. “This regulation was complex,” he said. “It touched every aspect of the process, from composition to web hosting, filing, distribution, digital and more. It dramatically increased volumes, while simultaneously presenting firms with complicated questions about what data needs to be presented, how it needs to be presented.”

Katie King says the adoption of TSR created massive challenges in terms of data management. “For most firms, the first step in achieving the operational efficiencies required for TSR was making sure they could coordinate data across operational functions in a consistent manner,” she said.

According to Scott Ostrowski, these new demands forced firms to create “more of a scalable and repeatable process” that was able to handle the increased volume. “We were able to meet the regulatory requirements, and the document that we produced looked very professional and guided the overall investors to the most important information,” he said.

Key to this approach was the integration of separate processes and systems such as composition platforms, web hosting and physical printing into something resembling a holistic solution for document creation and distribution. For example, rather than asking its clients to compose documents and send them for web hosting and printing, Choudhary said his firm created an integrated platform that included a composition platform equipped with a “publish” button that takes clients directly to web hosting and print capabilities.

A key area of innovation is the separate system that checks and cross-references data that client firms are using in their core documents. This system clears data for validation before it is entered into the “DocuBuilder” platform. The firm then conducts another final check to ensure data in the TSR matches data in company financial statements. The portal provides a “safety net” for print specifications and specifications and uses an artificial intelligence application to extract the ticker symbol and CUSIP to ensure that the correct document is applied to the right fund.

The Broadridge platform also integrates and automates the process of IXBRL tagging. The fact that the tagging is conducted up front, at the point of data ingestion, creates efficiency, reduces risk and plays a big role in allowing firms to keep pace with the huge volume of tags that must be applied across fund classes.

Raffaela Sinopoli said that for her firm, internal integration played an equally important role. Prior to TSR, Franklin Templeton had separate oversight teams managing its six fund families, with different third-party administrators (TPAs) servicing the funds. “We knew we couldn't implement the TSR using this model,” she said. “So we partnered with Broadridge and created a centralized team to review the TSRs. Having one vendor and one team to do the review allowed us to more efficiently manage both the increased volume and the increased risk associated with those new volumes.”

For the industry as a whole, the final infrastructure created for TSR not only proved capable of handling the increased volumes, it also equipped firms with a process that is efficient and flexible enough to take on future challenges, such as prospectus automation, or compliance with new regulations in additional regions like Canada, where regulators are currently considering their own TSR-like rule.

A Foundation for Future Innovation

According to Franklin Templeton’s Raffaela Sinopoli, now that the industry has gotten past the hurdle of initial compliance, it can set its sights on bigger improvements in what she calls “Day 2” of the TSR process.  

For example, Sinopoli said Franklin Templeton is working with Broadridge on ways to automate footnotes and disclosures, a process that she says remains overly manual. Harsh Choudhary said Broadridge is developing an AI-powered readability index that will score how reader-friendly, digestible, and engaging documents are from the perspective of retail investors.

Katie King said PWC is working on AI applications that can ensure consistency between the TSR and other financial statements. Going even further, U.S. Bank’s Scott Ostrowski envisions a day when AI solutions read through company financial statements and actually populate the TSR. “In the future, it might be possible to use AI to garner data from financial statements to create a first draft, or at least a data file that will serve as the foundation for a document,” he said.   

That could be just the beginning. Across the board, the panelists agreed that the systems and processes established for TSR compliance will serve as an operational foundation for more innovation in the future. “If you think about how fast the way people consume information is changing, this is an exciting time from a technology perspective,” said Scott Ostrowski. “I’m really curious to see what AI can do when it comes to summarizing all the information that's tagged in the TSR and presenting that to shareholders using different digital mediums.”