What the Tailored Shareholder Report Rules Get Right—and What They Miss

The SEC’s adoption of the Tailored Shareholder Report (TSR) rules marked one of the most significant overhauls of fund disclosure requirements in recent years.

Over several decades, mutual fund and ETF shareholder reports had grown in length and complexity, often at the expense of clarity and accessibility, and the SEC was right to revisit these requirements. ICI strongly supported the TSR rules’ primary objective: to create concise, visually engaging reports that improve retail investors’ understanding of their funds.

Through sustained collaboration and dialogue with our members, key service providers, and SEC staff, ICI helped ensure the industry was prepared to deliver on this ambitious reform, and ICI stands ready to continue its engagement with stakeholders to improve these rules to make sure they serve the interests of individual investors.

What the Rules Got Right

The TSR rules now require a streamlined, user-friendly presentation of key information such as performance, expenses, and material changes. These benefits include:

Improved accessibility

TSRs are significantly shorter—often two to three pages—and include intuitive graphics and summaries that help investors focus on key information.

Layered disclosure

Hyperlinks and online references allow investors to access more detail as desired, improving flexibility and engagement.

Consistency across funds

Standardized formatting and presentation make fund comparisons easier for retail investors.

Despite these improvements, several aspects of the TSR rules produced results that do not benefit funds or investors, and merit further change.

How the Rules Missed the Mark

The rules reversed progress toward electronic delivery of important financial information (e-delivery), a reform that is overwhelmingly popular with investors; mandated costly share class-level reporting instead of fund-level reporting; and redefined “appropriate broad-based securities market index” in a way that in many cases obscures relative fund performance. These provisions are out of step with investor preferences and should be revisited.

Excluding mutual funds and ETFs from Rule 30e-3

Starting in January 2021, Rule 30e-3 allowed mutual funds and ETFs to satisfy shareholder report delivery requirements by making reports available online and notifying shareholders by mail. Less than two years later, the SEC reversed course, requiring that each TSR be physically mailed to investors unless they have previously opted into e-delivery. Investors had come to expect that they would receive fund shareholder reports in the manner of Rule 30e-3 going forward.

Following this reversal, firms reported to us not only higher operational expenses but also environmental and logistical concerns stemming from the sheer volume of mailings. For many fund complexes, the dual impact of the class-level mandate and the loss of Rule 30e-3’s flexibility represented the most resource-intensive element of implementation.

Requiring class-level reports

Rather than requiring reports at the fund level, the SEC’s final rules required that reports be prepared at the share class level, despite this requirement not being part of the SEC’s original proposal.

This one change dramatically increased the number of required reports—by multiples in some cases. A fund complex with a hundred funds and six share classes per fund suddenly needed to produce 600 unique reports, rather than 100. The effects were costly and far-reaching.

Redefining “appropriate broad-based securities market index”

The TSR rules require funds to compare their performance against an “appropriate broad-based securities market index” representing the entire domestic or international equity or debt market. This approach can mislead investors and obscure a fund’s performance relative to its objective. For funds focused on narrow segments, like energy or technology stocks, broad market comparisons are often irrelevant. Worse, many broad indexes exclude entire asset classes, like commodities or high-yield debt, leaving investors with a faulty point of comparison. Although many funds may still use a narrower index in addition, the required broad-based index now takes center stage, pushing more relevant comparisons to the background.

The requirement also drives up costs. More than 90% of surveyed ICI member complexes, totaling more than 2,000 funds, adopted new broad-based indexes just to comply, while keeping their previous, more appropriate indexes as well. The result? More confusing performance presentations and higher ongoing index licensing fees for funds, and ultimately, their investors.

Improvements to Better Serve Investors

A few modest but meaningful adjustments to the TSR rules would significantly enhance investor experience and better reflect modern communication practices.

Allow default electronic delivery

The SEC should allow funds to deliver documents to shareholders electronically by default, while still permitting investors who wish to receive paper documents to do so upon request. E-delivery enhances investor protections, creates a better investor experience, and reduces costs and waste. ICI research indicates that investors already use the internet to manage their finances, and there is widespread investor support for default e-delivery. This is a commonsense, pro-investor policy that would benefit funds and investors alike. 

Revisit the class-level reporting mandate

An optional fund-level reporting model would preserve all relevant class-specific information in one TSR, including expenses and performance, while reducing unnecessary costs and environmental impacts. Firms that prefer to continue providing class-level TSRs could still do so. The SEC should also consider permitting underlying funds of variable insurance products, target date funds, money market funds, and state tax-exempt funds to be bundled in a single shareholder report. This flexibility would allow funds that serve a similar purpose for investors, or that provide similar investment options, to organize those options in one report.

Permit flexibility for “appropriate broad-based securities market indexes”

The SEC should take a principles-based approach to the term “appropriate broad-based securities market index,” focusing on what “appropriate” means in the context of each fund’s stated objectives and strategies. Doing so would eliminate costly, inapt disclosure and improve performance comparisons for fund investors.

A Collaborative Path to Better Disclosure

Rules that impose new requirements on funds must remain proportionate in scope to the benefits for investors. With respect to future disclosure reform, the SEC should seek to ensure that every change demonstrably improves investors’ ability to make investment decisions and assess their investments, without imposing unnecessary costs or complexity. ICI stands ready to work closely with the SEC to make these targeted improvements and to advance disclosure reforms that strengthen investor understanding.