Measure Twice, Cut Once: Effective Tailored Shareholder Report Design

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As we noted in our piece on Automation, Business Rules, and the SEC’s new Tailored Shareholder Report rule, figuring out the implementation strategy is the challenge.

 

Because Tailored Shareholder Reports aren’t merely abbreviated shareholder reports, they may offer ‘40 Act asset managers with an opportunity to revisit and rethink their approach to their shareholder reporting regimen.

 

By doing so actively and creatively, other data-driven marketing, sales, and compliance documents can leverage this new integrated approach to improve their functionality as well.

 

And now that SEC Rule 30e-3, which allowed for paper notification of online shareholder report filings, has been rescinded for the Tailored Shareholder Report, creating a more streamlined and efficient reporting process is warranted.

 

Given our deep experience in the investment data/content automation world, we see many parallels between our traditional areas of expertise and Tailored Shareholder Report strategy. After all, these are, at their core, a fact sheet in disguise.

 

We believe that by following the same counsel we offer to our investment management clients vis-à-vis the production of their data-driven collateral (fact sheets, pitch books, etc.), fund companies can sidestep many of the hazards and pitfalls that can bedevil the process.

 

Data is the easy part, actually. Tailored Shareholder Report data management can be  accomplished with a robust data warehouse and automation software and is a relatively straightforward process. It’s what Synthesis has been doing simply and reliably for clients for 25 years.

 

The complexity here isn’t in the data management, nor is it tied to coding or connectivity – it’s the Tailored Shareholder Report design and production processes that are tricky.

 

Learn to sidestep the pitfalls – read the Synthesis Tailored Shareholder Report Planning Guide

 

Tailored Shareholder Report Design

As we wrote in our introductory post on the TSR, one of the SEC’s mandates is for a “visually engaging” format: fonts, colors, layouts, and graphics. But those elements must be balanced against the mechanical aspects of the document; in other words, the final design has to support all the variations that are found across product lines, disclosures, quantitative data, and branding.

 

Template construction is, then, one of the most important parts of the process.

 

Here, fund companies should be using data from their actual products and testing it across numerous historical reporting periods to ensure the data fits as it should, irrespective of performance or market conditions, and doesn’t wreck the formatting.

 

This is what we mean by “measure twice, cut once.”

 

It’s also important that the emerging design remains faithful to the company’s existing style guides to ensure that the new TSR product is consistent with the rest of the firm’s materials.

 

All else being equal, it makes sense for the company to use the existing product fact sheets as either a template for the TSR, or as design inspiration.

 

Production Matters

 

Because the Tailored Shareholder report is a discrete product, with its own unique characteristics and isn’t merely an abbreviated shareholder report, fund companies should not simply default to their existing production methodologies.

 

New regulations offer an opportunity to reassess existing production processes to determine if better, more efficient practices can be found. And because the TSR is a fact sheet for fund investors, we believe many of the same best practices apply. To wit:

 

  • Data automation systems have to be in place to manage the Tailored Shareholder Report’s data integration, content sharing, generation of the graphs and charts from data pulled in from the data warehouse, and enforce business rules for content creation. And it all must occur in an orderly fashion.

 

  • Understand the requirements surrounding iXBRL tagging and filing with EDGAR. These are incredibly important, make sure these are on your TSR development agenda, as they are not going away.

 

  • Consistent beginning-to-end procedures of data management, content automation, client reporting, and distribution. If a company traditionally utilizes several partners to handle these steps, it is essential all systems are capable of full integration and can provide seamless transfer of data from start to finish. And all must be accomplished within a strict rules-based platform that ensures all internal business and compliance rules are followed without exception.

 

  • The operating model is also important to review. Ensuring that the right people are doing the right work in the right place at the right time is critical in the financial reporting cycle.

 

In the End…
Whenever the SEC offers new guidance to better protect investors, there is always an adjustment period for asset managers – not unlike a new house that creaks and groans as it settles – to figure out exactly how all the nuances and generalities embedded in the SEC’s rulemaking will play out in the market.

 

It’s here where an effective Tailored Shareholder Report strategy and development process can simultaneously advance your firm’s brand and promote investor transparency.

 

Interested in learning more?

Our TSR Planning Guide has more on the Tailored Shareholder Rule for 2023-2024:

 

1. How will it change existing reporting regimens?
2. What are the key elements of TSR planning?
3. What should you ask vendors/partners in the due diligence process?

 

Click here to read

 

 

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Tailored Shareholder Reports: Automation, Business Rules, and Simplicity

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’40 Act Funds need a TSR strategy

Find our Tailored Shareholder Report Planning Guide here.


 

By now, the entire ’40 Act Fund world is aware of the SEC’s new Tailored Shareholder Report (TSR) mandate.

 

Some questions linger (“What’s the right ‘broad-based index?‘”), but asset managers are making it a high priority to determine their Tailored Shareholder Report implementation strategy and its operating model implications.

 

Unfortunately, it’s not simply a matter of creating a (massively) shortened annual report – the specifics of the rule mean that new approaches to content strategy, business rules, and related policies and procedures are needed across numerous business functions:

  • Fund treasury
  • Financial reporting
  • Client services
  • Legal/compliance
  • External service providers and auditors.

 

Same Data, New Use
The TSRs must have access the full spectrum of qualitative and quantitative investment data (e.g.: returns, portfolio characteristics, holdings, etc.) that are generally available to support key sales, marketing and operational requirements throughout the fund’s lifecycle.

 

Traditionally, factsheets, pitchbooks, websites, investment databases all contain valuable information for investors. High performing asset managers construct these reports with:

  • A clear content strategy,
  • Automation,
  • Business rules to govern data integrity, and
  • Design to satisfy both the letter of the law, as well as the eye of the beholder.

 

We can now throw TSRs into this mix as well!

 

Fund companies should embrace the TSR mandate and rethink their approach to the entire apparatus surrounding shareholder reporting. By doing so actively and creatively, other data-reliant and data-centric areas can leverage this new integrated approach to improve their effectiveness – and timing – as well.


A solid strategy is essential

Click here for best practices in our Tailored Shareholder Report Planning Guide

 


 

Reconfiguring Automation Systems to Leverage the Power of Scale

Our magic equation is:  automation = scale = efficiency – it is really that simple.

 

Automation systems that are effectively designed and properly implemented improve operational efficiencies, reduce costs (opportunity and otherwise), and allow fund management companies to scale up the number of ways in which they can use internal qualitative and quantitative data to their advantage.

 

New Business Rules for New Regulatory Mandates

We use the term “business rules” to describe the rules or logic applied during the data loading and data rendering stages.

 

In other words, business rules tell the automation system how to consume and display your data.

 

But business rules can only be applied after a comprehensive strategy to deliver content, workflow and controls is established.

 

The best way to plan-out your strategy is to analyze the goals for the TSR, then ask and answer the questions regarding what information should be displayed. For example:

 

  • Which charts and tables appear on your materials?
  • Which disclosures are needed?
  • Why do some funds show one benchmark index in addition to the broad-based index, and others show just the broad-based index?

 

Unsurprisingly, the importance of strategy in establishing business rules in automation is thus profound.

 

If the content strategy and business rules do not exist, the firm’s approach to the TSR could present inconsistent results and harm the firm’s brand. A big benefit of automation is the ability to program these rules into the process, reducing the risk of human error.

 

It’s Simple: the TSR is a Fund Fact Sheet with Different Facts

The Tailored Shareholder Report is not merely a shortened version of a traditional report – its form and function are much more closely aligned with a traditional fact sheet than anything else.

 

It stands to reason, then, that extant rules for fact sheet production can strongly influence how the TSRs are conceived, drafted, and ultimately produced.

 

But what makes automation and appropriate business rules especially salient with the TSRs is the SEC requirement for a separate TSR for each share class.

 

For a Fund company that has, say 100 funds, each with 5 share classes, that’s 500 discrete TSRs that must be produced semi-annually, complete with iXRBL tagging, ADA compliance, and increased and more complex web-hosting requirements.

 

And that’s in addition to the normal updates to fact sheets, pitch books, brochures, website, investment databases, required SEC filings, and other digital endpoints.

 

Viewed from this perspective, a comprehensive content strategy, clearly-defined business rules, workflow and controls and supported by a reliable automation systems are essential.

 

Easing the Burden on the Fund Treasury Teams

Some of the most important benefits that come from automation and clearly-defined sets of business rules are felt by the fund treasury teams.

 

The TSR is a mix of qualitative and quantitative datasets. By ensuring that the right quant data pulls from the right places at the right times and populates the TSR correctly (as it does with automated fact sheet production), the treasury team can focus its attention more closely on the qualitative data.

 

Because areas such as the “Management’s Discussion of Fund Performance” will change meaningfully every reporting period, the ability to rely on the quantitative data population and design being correct is invaluable, as the compliance team can more squarely focus its attention on ensuring the nuances of the qualitative discussions meets the regulatory mandates.

 

In the end…

After 25 years in the business of automating data-driven sales and marketing collateral for investment management firms, Synthesis is uniquely positioned to assist ’40 Act fund companies to effectively navigate the myriad of strategic and production-related challenges posed by the TSR rule.

 

Want to learn more?

Read our Tailored Shareholder Report Planning Guide

 

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The New Tailored Shareholder Rule – What ’40 Act Funds Need to Know 

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Just Updated:

Synthesis Technology’s Tailored Shareholder Report Planning Guide


 

In case you missed it, the SEC is mandating that mutual funds and ETFs shift from traditional reporting documents to something sleeker. The old reports ran dozens of pages in length and, quite frankly, have been largely ignored by their shareholders. Thus, they are being replaced by something far more useful for the average fund investor. 

 

According to the SEC press release: 

“Shareholder reports are amongst the most important documents that fund investors receive… These reports, however, often are more than 100 pages in length. As a result, a retail investor looking to understand the performance, fees, and other operations…may need to sift through extensive financial information. Today’s final rules will require fund companies to share a concise set of materials that get to the heart of the matter.” 

 

Beginning in July 2024, mutual fund and ETF shareholders will begin receiving “Tailored Shareholder Reports.” These will be shorter, with a “visually engaging” format, and a stricter focus on the information that would be most relevant and of interest to the average shareholder. 

 

This rule change will allow retail shareholders to more easily assess and monitor their fund investments via documents that are concise, relevant, and written in plain (read: non-jargony) English. 

 

Please note that these new reports are in addition to existing filing and disclosure requirements – not a replacement of them. Full shareholder reports, the SAI, and full financial statement disclosure are still required and will continue to be available online via XBRL tagging and EDGAR. Financial professionals and accredited investor-types (or those who simply desire more in-depth information) will thus be able to access this detailed data online.

 

Fact Sheets for Fund Investors

Because of the strong implied similarities between the TSR and traditional fact sheets, effective compliance with these new rules will require Act 40 funds to have automated systems in place that can:

  • manage data integration
  • streamline content sharing
  • create charts and graphs from that data and content, and
  • create and enforce business rules for content creation.

 

Given Synthesis’ long experience with fund fact sheet automation, we have extensive expertise in all of these areas and thus have several recommendations about what Act 40 fund companies should be thinking about as they begin strategy planning for the coming changes in their reporting procedures. 

 

Now is the time for fund management companies to review existing partners and procedures to ensure efficiency, reliability, responsiveness, and cost-effectiveness. We believe the opportunities and challenges presented by the TSR rule are enormous in terms of the potential to revolutionize the efficiency, costs, and impact of shareholder reporting.

 

At the Outset…

Make sure your partner (or internal team), is well-versed in the requirements around iXBRL tagging and filing with EDGAR. This is new and incredibly important: TSRs will need to be 100% tagged so that investors can compare fund performance across their portfolios. The data needs to be properly tagged, managed and consistent. Make sure this is on your TSR development agenda, as they are not going away. . 

 

Also, it’s equally important to ensure that everyone involved with managing the TSRs fully understand the beginning-to-end procedures of data management, content automation, client reporting, and distribution.  

 

If a company traditionally utilizes several partners to handle these steps, it is essential all systems are capable of full integration and can provide seamless transfer of data from start to finish. 


Read our latest: Planning Guide for the SEC’s Tailored Shareholder Report Rule


Design Matters

Most fund companies allocate important resources to their marketing, sales, and client service collateral with the intent of meeting many of the same goals that are being embraced by the new rule:  Make content that is meaningful. Enhance the company’s brand. Ensure accuracy.

 

So there is every reason for the new TSRs to receive the same level of creative scrutiny and investment – after all, the SEC’s mandate is for a “visually engaging” format: fonts, colors, layouts, graphics – each of these elements must find a home here. 

 

The challenge in designing something like a TSR is that there needs to be equal emphasis on the aesthetics and the mechanical aspects of each page. This becomes especially difficult when one factors into consideration all the small differences between share classes within a single fund, as well as those between different products. 

 

The ultimate design must support all the variations in the product line, data, disclosures, and branding without dissolving into chaos. 

 

In short, know that one of the biggest challenges will be creating templates that account for all these variations and can handle them with aplomb. The design team should thus mockup as many sample documents as in practicable, using real data to ensure the formatting works and can account for each extreme in the document’s potential content (by “extreme” we mean highly differentiated from a “standard” product). 

 

We also recommend at the outset that fund managers pay strict attention to any/all existing style guides to ensure consistency across the firm’s materials.  In our view, many firms would be wise to begin their design effort by looking at their existing factsheets for inspiration. 

 

 Content Sharing 

Perhaps the biggest difference between the proposed TSR and traditional shareholder reports is that a factsheet-style report produced at volume, benefits from the same efficiencies as do marketing factsheets, via true automation. 

 

In our lexicon, “automation” accounts for 

  • existing business rules 
  • shared libraries of content and disclosures 
  • product data 
  • market data 
  • firm information, and 
  • integrated design capabilities. 

 

Systems like the ones built and refined by Synthesis, that have long brought profound efficiencies to scaled, volume production of factsheets, pitch books, commentaries and other documents can now be applied to these new TSRs. 

 

This expertise is a function of both technical capability and professional experience – a logic that might be somewhat novel to the reporting teams at mutual funds, as well as the vendors who support document productions as almost “one-off” entities with separate editorial cycles. 

 

Our recommendation is for Act 40 fund companies to embrace procedures that place a premium on automated document production while also looking for solutions that are firmly rules- and data-driven.  


 

For more best practices and strategy, click here to read our Tailored Shareholder Report Planning Guide

 


 

Strategy for the At-Large Datasets 

The SEC regulations stipulate the TSRs contain 14 datasets, including principal markets (for ETFs), statements on material changes, expenses, performance discussions, fund stats, holdings, and name/ticker/shareclass, among others. 

 

Based on our experience with fact sheet automation and design, these datasets may fit into two pages, which would clearly meet the new standard. And while the SEC has been uncharacteristically nebulous regarding specific document length, it is our guess that these TSRs will eventually find a home in the three to four–page range, meaning that fund companies will have some additional room with which to work. 

 

However, as fund companies familiar with the ins-and-outs of traditional print products well know, there can be a significant cost differential between 2 and 3, or 3 and 4 pages. For this reason alone, it’s important for Act 40 fund companies to partner with a consultant well-versed in efficient design and layout, given the burden of higher production costs between given page sets. 

 

For these “at-large” datasets, we would recommend fund companies allow three interrelated imperatives to help guide the decision-making about what to include: Client service. Education. Marketing. 

 

For example, if there are advantages to a fund’s approach or if there are specific metrics by which the fund can be favorably compared (but might not necessarily be “kitchen table”-type analytics), fund companies might want to consider their inclusion. Similarly, use of non-traditional metrics offers an educational opportunity, which enhances the relationship and can demonstrate a clear understanding of what investors both need to know and want to know. 

 

Artfully establishing and maintaining such a balance is essential across each of these three business imperatives. 

 

In short, it allows fund management firms some flexibility in terms of choosing metrics whose sole purpose is to put their work in the best possible light while still remaining compliant with the new regulations. 

 

In the End… 

Whenever the SEC offers new guidance to better protect investors, there is always an adjustment period for asset managers – not unlike a new house that creaks and groans as it settles – to figure out exactly how all the nuances and generalities embedded in the SEC’s rulemaking will play out in the market. It’s here where the fund reporting team becomes an essential partner in TSR development.  

 

Contact us to learn more and please watch for future content from us on this subject as we will be sharing details and insights gleaned from our work with clients on these documents.

 

For now, please refer to our latest, Planning Guide for the New Tailored Shareholder Rule.

 

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Client Success Story: A Marketing Team That Can Now Market

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Synopsis: $27+ billion asset manager engaged Synthesis to automate their fact sheet production after failed attempts at automation with other vendors. The result?

  • Quarterly time-to-market with updated collateral fell by 70%, with a corresponding decline in internal resource allocation
  • Because they were no longer focused on sales product support for 24 weeks a year (the total length of time spent managing quarter-end data production), the Marketing team could focus on core marketing functions
  • They were able to fully invest themselves in projects which added significant value to the firm’s overall brand
  • As a result, management approved higher budgets, more staffing, and a significantly broadened project portfolio.

 

It is easy for asset management marketing and sales teams to understand the benefits of data and marketing collateral automation.

Why? Because automation:

  • Saves time
  • Improves efficiency
  • Reduces opportunity costs, and
  • Enables stronger alignment across the marketing, sales, and compliance departments.

Understanding is one thing, but convincing upper management to add budget line items for new relationships is often tough – especially when their impact often escapes the usual bottom-line KPIs.

Synthesis has an asset management client with $27+ billion AUM, whose marketing director faced exactly this sort of pushback when the relationship was initiated. Here’s their story:

 

MANUAL IS INEFFICIENT

Seven years ago, they were updating data feeds from their custodians, reconciling the data, and updating their marketing and sales collateral manually. It was a highly inefficient process, ripe for error, and highly taxing on the teams responsible for data.

Their first experience with automation was a flop. The vendor’s software didn’t work as advertised: data was incorrect often enough to be highly concerning, as well as the fact that changes made to the collateral design in previous quarters often did not carry over to the next.

So every datapoint in every data set had to be manually verified, and each formatting change in the collateral had to checked.

The result was an inefficient quarter-end process lasting 6-weeks, consisting of a dozen or more employees across three departments, often working 12-14 hour days.

As the Marketing Manager said, “After automation, we ]still] had to check every data point.” Automation, indeed.

 

OUTCOMES

Synthesis’ systems improved data distribution across their entire network, from fact sheets and other marketing collateral, to the data directly fed into their website. Changes were easy and were captured quarter-after-quarter. The outcome?

  • Quarterly reporting time fell from 6 weeks to 20 days (and it would be less if they didn’t have to wait for a specific datapoint from one of their data sources);
  • Only two team Marketing Team members are now involved in quarter-end data -related tasks;
  • 50% faster to market with their data, offering an immediate boost to their competitiveness.

 

“SYN is exactly what I envisioned.”

Initially, KPIs reported to the ExCom revolved around days saved, manpower efficiencies, and data distribution timelines. But over time, a firmwide appreciation grew for what Synthesis’ relationship truly meant to the firm. Namely, everything was faster, more accurate, with fewer people involved.

Importantly, other groups within the firm were positively affected as well. For example, the Compliance team knows that the data coming out is correct, so all they have to do is spot check for quality control.

And the Digital team, for their part, no longer bothers to check data at all anymore.

 

IN THE END…

The Marketing Director understands that while our relationship ensures data accuracy and efficient distribution, the effects are more profound: better alignment between marketing, sales, and compliance, improved marketing functionality, a more nimble sales process, and higher morale across each department.

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