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New Research Finds Mutual Fund Providers Overwhelmingly Support the Securities and Exchange Commission’s Proposed Short-form Prospectus Rule

According to a new study commissioned by New River and conducted by Forrester Consulting, there is very strong industry-wide support for the Security and Exchange Commission’s (SEC) expected mutual fund prospectus Short-Form proposal. The study, entitled “The Short-Form Prospectus Industry Poised For Savings, Transparency, And Innovative Ways To Communicate With Investors” incorporates responses from 150 companies that sell mutual funds and annuities, and found nearly all in favor of the Short-Form prospectus with more than nine in ten (95%) stating they would be somewhat or very likely to consider delivering the Short-Form prospectus if the SEC ruling prevails. More specifically, participants believe this streamlined delivery would result in a significant opportunity for reducing costs and could lead to better ways of producing and delivering investor communications.

The SEC has indicated it will propose a Short-Form prospectus ruling this year, which would allow issuers to reduce the number of pages needed in a prospectus and only deliver the large prospectus—which would still need to be filed with the SEC—when requested by an investor.

While investors need clear, concise information about their investments, the industry currently wastes significant dollars generating the information it provides, and the carbon footprint caused by the excessive use of paper undermines today’s climate of concern around sustainability. The Short-Form prospectus presents a significant opportunity to reduce costs and to supply shareholders with more transparent communication. For example, the survey also found significant support for combining the Short-Form prospectus with the trade confirmation in a single delivery as more than 9 out of 10 (90%) would consider a printed combination of the Short-Form prospectus and confirm if allowed.

According to the study, “Investor communication for the securities industry is in need of reform: The current prospectus delivery method provides information in an arcane format that’s hard for investors to digest. Not only does the investment industry spend exorbitant amounts of money printing and sending these often unread prospectuses, the environmental impact of producing and shipping all that wasted paper is irresponsible in today’s climate of sustainability and energy efficiency.”

Forrester Consulting estimates that the total cost of printing and postage for delivering the current prospectus annually and semi-annually is approximately $1 billion. Based on Forrester’s estimate of total printing and postage costs and survey respondents’ estimates of potential savings the proposal, passage, and widespread adoption of the Short-Form prospectus would yield a savings of approximately $300 million per year. In addition, respondents also cited the chief executive officer (CEO) and chief compliance officer (CCO) as the key decision-makers for implementing the change and nearly all (86%) said they would likely explore electronic delivery if the Short-Form ruling is passed.

"The study found the majority of distributors in support of the proposed Short-Form largely because it would significantly reduce their over-all costs, support their efforts to be environmentally conscious while supplying their shareholders with more transparent and effective communications," said Len Driscoll, Vice President, Product Marketing at NewRiver. “Because we help many of the leading financial services companies streamline their compliance initiatives, decrease their operational costs, improve their employee productivity, and enhance their customer relations, we think this study clearly demonstrates the overwhelming support from distributors who view the Short-Form prospectus as a way to unleash cost savings, provide improved clarity, and enable innovative new approaches to bolster shareholder communications.”