Rule 30e-3 May Modernize Disclosure, But What Information Do Client's Want?

New delivery options can provide employees with more information about the funds they are investing in through your 401(k) retirement plan. But before you turn on the fire hose of information, a quick review of what information helps engage employees in investing can help you increase your employees’ participation in your plan.

Recently, the Securities and Exchange Commission adopted a new rule which allows for electronic delivery of reports to shareholders. This new rule, 30e-3, makes it easier for shareholders to receive information without totally disposing of the old paper form. The new rule requires that reports to shareholders be made available on a public website in a manner that shareholders can search and save. The goal of the rule is to provide shareholders with advance notice of changes. While the rule does not take effect until 2021, it’s clear that shareholders, and your employees, want more information. 

Not all employees want to review reams of information on the stocks in their mutual funds. A growing trend of environmentally and socially conscious investors are digging deeper into the ethics of how companies operate and choosing investments based on those qualifications. But, what do employees actually want to know about the stocks in their portfolios?

Most investors think they want to review the annual reports and proxy statements of the funds they have invested in, but rarely do. Instead of digging into the thin paper and thick text, investors chuck the whole report in the bin, unopened. That desire to read, but quick turn to feeling totally overwhelmed underlies the SEC’s new rule. In fact, going forward, the SEC has also asked for feedback from those involved in literacy and design. In other words, the SEC is now undertaking efforts to determine how can investors avoid chucking the entire annual report instead of finding the key elements they are searching for.

Often investors focus on current events involving the stock market as a whole, instead of how the companies in their portfolios are performing as to how they promised to perform. Employees will want to know how much debt the companies are taking on and whether that debt is increasing or decreasing.  

Many employees want information on the chief executive at the company. They may want to know not only about the CEO’s performance, but also about any possible ethical issues the CEO could be involved with (that could shorten the CEO’s tenure at the company). Similarly, they’ll want to know any brewing controversy involving the company. While this information is in annual reports to the SEC, based on how the annual reports are designed, and the sheer volume of them, investors often cannot find the company’s own risk assessment of litigation or controversies.

Investors also want to know how the company plans to keep itself profitable. The business model or business strategy that is discussed in annual reports is frequently a TLDR; too long, didn’t read. Investors and employees want a briefer, more generic summary of how the business plans to keep operating and how it plans to stay competitive.

Finally, revising the socially responsible investing trend, investors who choose those funds may initially research the stocks at first, but then also want ongoing reports. What kind of information do those investors seek? They look to how responsive companies are to issues raised to them, as well as their own reporting on environmental issues or avoidance of potential problems. Companies now issue SRI reports, as a separate document. Many larger companies, like Coca-Cola, BP and Shell make those SRI reports available on the web.