Newton’s Principle of E-Delivery

Newton’s first law states that every object will remain at rest or in uniform motion in a straight line unless compelled to change its state by the action of an external force. This is normally taken as the definition of inertia.

If he was alive today, Newton’s Principle of E-Delivery would suggest that due to the laws of inertia, organizations will continue to produce and disseminate paper in conventional ways until the power of the Internet overcomes this force.

I attended the Federation of Mutual Fund Dealers’ ( annual conference this week and heard from a number of dealers, fund companies and regulators regarding the increasing amount of disclosure coming from Point of Sale, CRM2 and FATCA regulations in the next few months. While supportive of greater transparency to investors, many stakeholders raised concerns over the barrage of communications that will hit investors in 2016, particularly the overlap in messaging related to POS3 pre-trade fee disclosure for mutual funds and CRM2 fee and performance disclosure. For many in the room, these initiatives represented potential advisor and investor confusion, as well as cost increases from more printed communications and associated postage.

One industry mutual fund veteran commented that it was unfortunate the regulators had not better coordinated the POS and CRM2 regulations in particular, and felt that given the regulatory restrictions surrounding electronic delivery of documents and trade confirmations especially, that investors were going to be inundated by printed communications.

However, amendments made to National Policy 11-201 Electronic Delivery of Documents in 2011 have facilitated the use of e-delivery, made it less prescriptive and more flexible. In the case of gathering express consent from investors, the securities legislation no longer requires a deliverer to obtain the consent of the intended recipient nor does it prescribe the form or content of any consent (though many companies still seek express consent to help reduce the risk of non-compliance).

An excerpt (section 2.1) from the Policy outlines the four basic components to the electronic delivery of a document:

1. The recipient of the document receives notice that the document has been, or will be, sent electronically or otherwise electronically made available, as described in section 2.2.

2. The recipient of the document has easy access to the document, as described in section 2.3.

3. The deliverer of the document has evidence that the document has been delivered or otherwise made available to the recipient, as described in section 2.4.

4. The document that is received by the recipient is not different from the document delivered or made available by the deliverer, as described in section 2.6.

For mutual fund companies, challenges do exist when gaining express consent for electronic delivery of trade confirmations to investors; however, a communication strategy that accounts for investor preferences as well as dealer and fund company obligations will help financial organizations take advantage of the enormous cost savings potential that e-delivery represents. Without a communication strategy to help move investors from the print stream to the e-stream, nothing will change. Just ask Newton.