The internet is a great access point for information, but government policies that dictate how citizens must gain access to critical documentation in the name of “modernization” result in negative consequences that should not be overlooked.
This article by Mark Pitts appeared on the American Forest & Paper Association website on August 12, 2015.
The internet is a great access point for information, but government policies that dictate how citizens must gain access to critical documentation in the name of “modernization” result in negative consequences that should not be overlooked. A proposal by the Securities and Exchange Commission (SEC) is the latest example of government overreach that not only disenfranchises many people, but ignores how most people prefer to receive financial investment information. The SEC has proposed a new rule (Rule 30e-3) that would eliminate the current default requirement for financial companies to transmit information to their investors in paper form. If passed, financial institutions would issue a one-time letter to investors announcing the shift to electronic delivery. No response from an investor would indicate their implied consent to electronic transmission.
While the use of smart phones, tablet devices and Internet connectivity is second nature to many people, there are still significant populations where this is not the case. Thirty percent of American adults do not have broadband access. For citizens over 65, this number rises to 53 percent and 45 percent of seniors do not own a computer. But 34 percent of this population does own mutual funds. In addition, 30 percent of all investors today do not use the Internet for investment correspondence due to concerns about security.
The SEC proposal would result in several negative outcomes. Investors who have been receiving statements in paper form for years might overlook or misunderstand that the notice is a one-time opportunity to make a permanent choice on how they will receive future information. This implied consent approach, requiring investors to opt-in to paper or be automatically switched to digital delivery is a clear example of the government overstepping its boundaries. Implied consent is prohibited in other federal agencies. The IRS, for example, does not allow financial organizations to use implied consent to enroll investors for electronic delivery of tax documents.
The rule will make access to critical information upon which millions of Americans depend to make sound investment decisions more difficult by disproportionately disadvantaging those who are less likely to have high-speed Internet access, such as the elderly, low-income households, rural communities, and military personnel who are deployed abroad.
The proposed rule ignores the preference of the majority of investors for receiving investment information in a paper format. While the option to receive investment information digitally has been available since 1995, only 10 percent of investors choose this method of information delivery.
Rather than bowing to investment companies looking for ways to reduce costs, the SEC ought to focus on its main mission of protecting the interests and preferences of investors. Individual investors should not be forced out of receiving financial information in paper format through an implied consent mechanism not allowed by other government agencies, but continue to have the ability to opt-in to electronic delivery at their convenience. Paper provides the broadest access to all investors and should therefore remain the default option.