IIROC Notice Request for Comment on Strategic Issues

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1 Investor Communication Solutions, Canada 5970 Chedworth Way Mississauga, ON L5R 4G5 P: F: July 31, 2015 Mr. Doug Harris Vice President and General Counsel Investment Industry Regulatory Organization of Canada Suite King Street West Toronto, Ontario M5H 3T9 Re: IIROC Notice Request for Comment on Strategic Issues Broadridge Investor Communications Corporation (Broadridge) is pleased to respond to the Investment Industry Regulatory Organization of Canada s (IIROC) Notice Request for Comment on Strategic Issues. IIROC seeks industry input to assist with its strategic planning process. Specifically, it is reviewing how it can best fulfill its public interest regulatory mandate in light of the significant and unprecedented change Canada s capital markets have experienced in recent years. We will address the first of IIROC s questions: 1. What are the important trends in the industry and regulatory environment that could impact IIROC and its public interest mandate? How will these trends impact IIROC and its mandate? Trends & Implications Investor communications have never been so dynamic. Regulations are increasingly complex and there is growing pressure to reduce communication costs, while effectively engaging investors. At the same time, investor preferences for how, when and what kind of information they receive are evolving rapidly. A shift to digital investor communications continues, which presents a growing challenge for IIROC to monitor and audit interactions between investors, advisors, broker/dealer firms and corporate and investment fund issuers. New technologies and regulatory change are mutually reinforcing. Oftentimes, technology enables, and is informed by, regulatory evolution. Together, new regulations and innovative, technology-based solutions that permit the practical implementation of new rules are driving efficiency, equity and more robust investor engagement. 1

2 Electronic Communications With the availability of electronic communication platforms, the regulatory framework in which they reside and the increasing investor appetite for digital information, there are new opportunities in investor communications. Today, companies can provide information to investors essentially when, where and how they want it which makes for more engaged investors. As governance, transparency and accountability in capital markets becomes more closely scrutinized and more rigorously audited and measured, engaging investors and demonstrating leading communication practices is vital. Investors increasingly adopt online and mobile communications as a convenient, efficient and environmentally responsible alternative to paper. Proven and trusted e-delivery platforms already exist, making the deployment of alternative delivery efficient and cost effective. Preference management makes communicating with investors according to the investor s preference either paper or electronically efficient and cost-effective. Sending information to investors the way they want to receive it encourages investor engagement. Broadridge first brought electronic delivery of proxy communication materials to market in Since that time, the adoption of e-delivery by investors has increased steadily at between 2 to 3 percent annually. 2

3 At the same time, retail shareholder voting is increasing. This suggests that providing materials to investors in the format they prefer results in more engagement and participation in the proxy voting process. The image below captures the 2015 Proxy season retail vote returns by channel. For shareholders who opted to receive proxy material through electronic delivery and voted, 98% submitted their vote through the internet. As with the delivery of proxy communication materials, the electronic delivery of investor communications both compliance and marketing has been and continues to be spurred by evolving regulations. Such is the case for the Client Relationship Model (CRM) with the objective to provide greater transparency, efficiency and, ultimately, retail investor confidence. National Instrument (NI ) prescribes the transition from the delivery of prospectus documents to Fund Facts documents a transition Broadridge has supported since For example, our automated Fund Facts solution provides operational efficiency, effective compliance and superior customer service, while enabling the continued shift to digital document delivery and access. Point of Sale Stage 3 (POS3) of NI anticipates a transition from post-sale to pre-sale or point-of-sale delivery of disclosure documents. This change will fundamentally transform the way advisors communicate with their investors. To support that transition, Broadridge has created a digital connection tool that utilizes libraries that store regulatory and marketing documents which are accessible by investors and advisors to facilitate presale delivery. This makes investor communications more effective. A reconciliation of pre-sale to post-sale distribution helps ensure full compliance. Proposed changes to regulations will soon require investment firms to send additional information to retail clients for each account they hold. Under CRM2, the information will include 3

4 details on direct fees charged to investors by investment brokers/dealers, commissions earned by investment advisors from third parties and investment performance related to retail accounts. Dealers must analyze their current and required technology to determine which components they currently have, what they need to acquire or build, and how to configure the multiple interfaces. The new CRM2 reports Charges and Other Compensation Report and Report on Investment Performance are under development in both print and digital formats. The electronically generated documents may be delivered to investors by or through multiple digital channels. Digitalization Considerations for IIROC: Can IIROC s systems and processes support print, electronic and evolving communication platforms concurrently? Should IIROC promote the adoption of electronic delivery of materials to investors in order to encourage cost-efficiencies for the market, including the cost of regulatory compliance and auditing? Can IIROC support its members by encouraging investor communication best practices that include electronic and digital communications? How can IIROC recognize the efficiency, timeliness and transparency inherent in electronic communications to improve its processes? Can IIROC take a leadership role in the mitigation of global climate change by encouraging faster adoption of digital investor communications, thus reducing the investment industry s carbon footprint? Today, investors use a variety of digital technology, so the financial services industry must digitalize to keep pace. U.S. research conducted by Pew Research Centre 1 shows that 87% of consumers use the Internet. Of investors with an annual income greater than $75,000, more than 95% use the Internet, 81% have a smartphone, 55% own a tablet device, and 78% use a social network. We expect similar levels of digital uptake in Canada. Age is not a factor in Internet usage. While apps and tools vary, Internet usage among Millennials, Generation Xs and Baby Boomers is consistent. The research also suggests that usage lags in Millennials. While Millennials use for work, they use other methods to communicate outside of the office such as Facebook, Twitter and Linked-In. This evolution is vital to understand how rapidly communication will evolve, By 2018, Millennials will represent over 50% of the workforce. Digitalization will demand a fundamental transformation in how investment firms communicate with their investors. Converting communications from static PDF s to interactive, two-way 1 Research from pewinternet.org 4

5 communications will improve the investor experience. In addition, digitalized content can also improve investors financial literacy by providing content in a way that is more accessible and more easily understood using audio/video mediums, interactive documents and the use of URLs to aid access to information Improving communications with investors can deliver significant value to investment firms and enhance their global competitiveness. Original Document Notification To the channel and device the investor chooses Communications Are now interactive and digital Transformed When we consider the evolution of communication from traditional print and mail technology to electronic and digital, it becomes apparent that regulatory evolution must keep pace with technology. Regulators and the investment industry, therefore, must stay in tune with technological changes that affect investors. This will help ensure the optimization of these technologies as they relate to transparency, disclosure, and investor literacy and protection. As IIROC reviews its strategies, consideration to evolving investor communication technology and the available communication channels through which investors prefer to receive those communications needs to be recognized. In this regard, we offer the following considerations: 5

6 How can IIROC s regulations and policies accommodate both print and electronic communications today, and anticipate future technologies? Does IIROC have the necessary tools, processes, skills and/or resources to fulfill its mandate, including audit, in a digital communications environment? Should IIROC develop rules, guidelines and policies that are more principles-based rather than prescriptive, in order to remain relevant in light of rapidly evolving communication channels. How can IIROC s regulations and policies encourage digitalized communications in order to improve the investor experience and engagement, and increase investor literacy? Conclusion We appreciate the opportunity to provide our comments to assist IIROC in your strategic planning process. We would be pleased to discuss further any of the technology and communication offerings that Broadridge provides to support the investment industry. Donna Bristow Vice president, Business Management & Operations Broadridge Investor Communication Solutions, Canada 6

7 Appendix 1. About Broadridge A Leader in Investor Communication Solutions Broadridge is the leading provider of investor communications and technology-driven solutions for wealth management, asset management and capital markets firms. We help clients drive operational excellence to manage risk, accelerate growth and deliver real business value. Our technology-driven solutions power the entire investment lifecycle, enabling our clients to successfully manage the complexity and operational requirements of today s capital markets. Broadridge is at the forefront of multi-channel communications, strengthening our clients capabilities to communicate with their clients and investors and meet regulatory requirements. With 50 years of experience, Broadridge s infrastructure underpins proxy voting services for over 90% of public companies and mutual funds in North America, and processes more than $5 trillion in fixed income and equity trades per day. Broadridge is the leader in corporate governance activities, processing approximately 85% of the outstanding shares in the United States and approximately 72% of the shares voted outside the U.S. in the performance of our proxy services. Broadridge enables over 2 billion multi-channel communications to investors annually. Broadridge provides transparency into the distribution of over 90% of mutual fund and ETF assets. Broadridge is a NYSE traded company with over five decades of experience and has a 98% client revenue retention rate over the past three years. 2. Solutions The following is an appendix of electronic communication solutions currently offered by Broadridge. Smart Document Fulfillment Smart Document Fulfillment is Broadridge s industry-leading electronic delivery and print-ondemand solution for delivering transaction confirmations and related regulatory documents efficiently and cost-effectively within mandatory post-sale timeframes. Our highly automated solution determines when documents are required to be sent to an investor based on the type of transaction and ensures the most recent regulatory document is sent to the investor. e-sp Lite Based on our industry-first Smart Prospectus solution, e-sp Lite electronically delivers investors the fund-specific prospectus or disclosure documents. The electronic delivery contains fundspecific information relevant to each purchase, including trade confirmations, and is viewable online and downloadable. e-sp Lite is the first step to digital distribution that lets investors choose how they want their information. It delivers a better customer experience and significantly reduces printing and postage costs for investment firms. 7

8 SmartAdvisor Smart Advisor is an innovative digital investor communication platform that enhances efficiency and effectiveness for financial advisors. The solution, ideal for pre-sale delivery, is an automated delivery system that allows investment professionals to access and deliver relevant documents to investors for marketing and sales campaigns, compliance, and regulatory communications. With access to tens of thousands of documents via the proprietary Smart Library system, advisors can be sure they are delivering current information to their investors every time with the unique ability of integrating with our Smart Document Fulfillment to ensure compliance requirements are met. Smart Document Creation Smart Document Creation enables industry and fund-specific data to be fed into customized templates for the creation of Fund Facts, Exchange Traded Disclosures, MRFPs, Financial Statements or Performance Reports. The latest innovation of Smart Document Creation features a web enabled enhanced user interface that lets users edit and review documents quickly and easily. Smart Disclosure Smart Disclosure is a data-driven solution designed to meet the fulfillment requirements of National Instrument , Investment Fund Continuous Disclosure. This solution simplifies the tabulating of consent mailings, gathering of investor preferences, and the production of both the Financial Statements and Management Reports of Fund Performance (MRFP). The documents to be mailed are then consolidated into individualized investor packages that utilize Quick Response technology and can facilitate standing instructions for future communications. Integration to Smart Document Creation is available for greater efficiencies. Inlet Canada Inlet, a joint venture between Broadridge and Pitney Bowes enhances customer engagement by enabling firms to distribute marketing, transactional and regulatory communications to the investor s preferred delivery channels with enhanced insight and interactive capabilities. Inlet builds upon existing Broadridge print mail and e-delivery services to support communications across a variety of channels, including emerging digital mail services such as Evernote, Amazon and epost. Inlet is the new era in smart digital delivery. Intelligent Statements and Reports CRM2 will soon require investment firms to send additional information to retail clients for each account they hold. The information will include details on fees, commissions paid and investment performance. Broadridge, through its back office systems and Intelligent Statements and Reports platform is developing an end-to-end solution for the data processing, user-defined document creation, delivery (print and electronic) and tracking of these reports. Tax Form Plus The Broadridge Tax Form Plus (TFP) provides automated tax form processing for securities brokers and dealers. Creation, amendment, duplication and cancellation of your clients forms has never been easier. TFP helps you streamline your annual tax form process to reduce expenses and free up resources for your company. For current Broadridge clients, this is a new service that can be seamlessly added to your operating environment. Integrated preference management enables investors to choose their preferred distribution method, through either print or electronic channels. 8

9 Smart Kits Smart Kits are concise disclosure documents sent from investment advisors to their new clients at the time of account opening. The Smart Kit includes all mandatory account opening information, a welcome letter and other messaging, all personalized for the investor. Smart Kits minimize production and mailing costs, address the requirements of CRM regulations and electronically record and report proof of delivery. 9