WASHINGTON -- Never mind plastic. Mutual fund providers have another question for their customers: "Paper or Internet?"
Without a scandal to stir the conversation, the big topic at this year's Investment Company Institute conference here was disclosure. Much of the talk at the annual meeting, which brings together the fund industry's bigwigs, revolved around finding the best way for fund companies to create and distribute prospectuses.
"It's just not working as a shareholder communication device," said ICI President Paul Schott Stevens.
Stevens said a recent survey conducted by the trade group revealed that 18% of fund shareholders throw away their prospectuses before they even look at them.
The debate also focused on ways to simplify the prospectus, and delivery was a hot topic. According to the ICI's research, nine in 10 shareholders access the Internet, so the thought of eliminating the mailing of prospectuses entirely -- saving money in the process -- was much discussed.
"The industry is focusing on disclosure in the wake of Sarbanes-Oxley regulations, but they need to look at communication as well," says John Watkinson, partner at Simplified Communications Group, a Toronto-based provider of electronic communications. "This information needs to be received and understood. The marketing material is clear, but once a person becomes a customer it becomes murky."
In his keynote address, Robert Glauber, the National Association of Securities Dealers' chairman and CEO, said the current state of disclosure "leaves a lot to be desired."
"The centerpiece is the prospectus, which is delivered at confirmation, after the purchase decision has been made," Glauber said. "It's dense and tedious and has no pictures. It's a lousy read, about as much fun as the Federal Register."
Glauber said the document shouldn't be limited to disclosures about conflicts and expenses. Instead, he said, it should be a concise, two-page summary, containing the fund's strategies, objectives, performance and risks on the first page, and the conflicts and costs on the second.
"This is the minimum amount of information investors should be able to easily compare from one fund to another, and having it would make them far better informed about the funds they consider buying," said Glauber.
He also suggested that Internet delivery should be an integral part of the point-of-sale disclosure process, "not an afterthought."
"They're moving in the right direction, since the Internet is a part of the general operation in most people's lives," said Jack Bogle, founder of the Vanguard Group.
Aside from disclosure issues, Glauber, in his keynote address, addressed the recent rumblings regarding soft dollars and "unbundling," noting that fund managers should work to disseminate information on unbundled pricing.
Glauber said the brokerage firms' argument that it was impossible for them to unbundle the pricing of research services and transaction services that are wrapped together has been weakened as a result of
and other firms unbundling transaction services for fund giant
disclosed in its 10-Q filing that it had started charging Fidelity separate fees for trading execution and research.
"It seems reasonable to expect that brokers more broadly could find a way to provide information on unbundled pricing," said Glauber. "This information would be important to mutual fund directors at a time when the composition and effectiveness of mutual fund boards has been the focus of investor and regulator concerns.
"Without unbundled cost information, directors must find it harder to determine whether the value to the fund of research services bought with soft dollars is worth the cost," Glauber added. "With this information, fund directors can do their jobs better."