No one can accuse Christopher Cox of being a neophyte when it comes to technology.
No one can accuse Christopher Cox of being a neophyte when it comes to technology. Led by its chairman, the Securities and Exchange Commission recognizes that there are ways to give greater access to financial information online to investors, particularly when it comes to mutual funds.
The SEC on Nov. 15 voted to propose allowing fund companies to send offering documents to investors over the Internet, following a rule passed last year that allows companies to send proxy materials the same way.
The proposal would require fund companies to send investors brief, two-page summary prospectuses and then post their full prospectuses online.
The summary would be a stand-alone document and would include such data as risk and return, and the fund's investment objectives, strategies and costs. Its goal would be to encourage investors to go online for more-detailed information.
Hopefully, the industry is ready to embrace this progressive proposal.
It has been widely reported that this idea could greatly reduce the huge amount of printed materials mailed to investors and save the mutual fund industry $300 million or more a year, from the current $1 billion it spends on printing and mailing fees.
In 1995, a similar proposal was rejected by the industry because not enough people had access to the Internet and many legal experts worried about disclosure laws. However, as Bob Dylan sang, "The times, they are a-changin'."
It's obvious that Internet usage over the past few years has increased substantially.
It's time for the financial services industry to support the SEC's proposal and to recognize the plan as a key vehicle of disclosure for investors. The proposal will benefit investors by giving them simplified access to important information and provide it in a user-friendly way.
Instead of plowing through hundreds of pages of fund prospectuses and shareholder reports, an investor would be able to go online and use hyperlinks to find exactly what they're searching for in the documents.
This would all be accomplished by using extensible business reporting language, or XBRL — or for the less tech-savvy, interactive data.
XBRL is reportedly becoming the standard way of recording, storing and transmitting financial information. The use of interactive data would apparently make it easier for investors to compare mutual funds before making final decisions.
As for the SEC proposal, Mr. Cox said that the summary prospectus would encourage investors to go online for more information.
"The online information would be available in a progressively more detailed format so that investors could move from the summary to the particulars with the click of a mouse," Mr. Cox said during a live webcast of the SEC's open meeting on the proposal. "This layered-web-page layout will let every customer obtain the level of detail they want."
This would be a win-win for the industry and, more important, for investors.
Jim Pavia is the editor of InvestmentNews.
