Many financial companies and the NASD are pushing for a move that would change the way mutual fund investors receive prospectuses, the Associated Press reports.
The lobbyists propose that fund prospectuses be made available electronically to investors instead of mailing out paper copies. The Securities and Exchange Commission has already proposed similar rules for final prospectuses issued in initial public offerings of stocks and bonds.
SEC Chairman William Donaldson said last month that he has asked his staff to conduct "a top-to-bottom review of the mutual-fund disclosure regime," including ways to make better use of the Internet and other technology. The SEC said that 75% of Americans have Internet access at home. But it remains unclear whether investors are Internet-savvy.
By law, the prospectus must be delivered before or concurrent with the delivery of a purchase confirmation. But in reality, many investors don't see a prospectus until after they buy, particularly if a broker suggests a fund purchase over the phone.
"A very substantial majority of them are not opened and never read," said Paul Schott Stevens, president of the fund industry's Investment Company Institute, which has urged the SEC to explore prospectus overhaul and electronic delivery.
Receiving a prospectus only after a purchase "serves virtually no purpose," says Mercer Bullard, a former SEC attorney and founder of consumer advocacy group Fund Democracy.
Moving from paper prospectuses to electronic ones could cut some costs borne by fund investors, though those savings would probably be negligible. There would also be some cost savings for financial firms. But providing more useful information to investors, rather than saving money for firms, drove the NASD task force's call for electronic prospectus delivery, says James Riepe, a task-force member and vice chairman of T. Rowe Price.
A handful of fund and securities firms already send electronic prospectuses to their customers. For instance, at the Vanguard Group, one in six investors have consented to get fund documents in the form of e-mails containing links to online materials.