If the IRS, family physicians and commercial banks all are managing to convince their clients to adopt e-delivery, why has the brokerage business so far come up short?
That’s a focus of research released last week by Pershing. Its “Closing the E-Delivery Gap” whitepaper bemoans the truly disappointing rate of electronic document adoption within the securities industry.
As a whole, the investment business is behind. In 2011, the broader Dalbar, Inc.’s e-Delivery Benchmarks study, which surveyed mutual fund, variable annuity, life insurance, employer-sponsored retirement plan firms and brokerage firms, reported less than 10% adoption—see my post at that time).
Pershing’s report discusses research that it commissioned from Beacon Strategies, a research and consulting firm. The Beacon work identified a gap between expectations of the brokerage firms it surveyed and what is the status quo.
Almost nine out of 10 (88%) survey respondents called e-delivery an important initiative. More than half (53%) expect investors to sign up for e-delivery of at least one communication. But, as the below graphic distributed by Pershing shows, “no service yet achieves adoption equal to even half of the expected level.”
These findings were published in a press release. They're expanded on in a whitepaper available by registering on Pershing’s site. Read it yourself and you’ll get the sense that the custodians are just about at their wits’ end.
Who's On The Team
The paper includes extensive discussion about why investors would adopt e-delivery (it's not for environmental reasons—just 21% care about that) and why they would decline it (security is a concern). Incentives and best practices to drive adoption are reviewed.
Here’s how Beacon assesses the involved parties:
Custodians are the group with the greatest economic incentive to promote e-delivery. And yet, Beacon says the best practices that custodians have in place to support the initiative are “not totally on target.” They base this on consumer response data and the overall adoption rate.
While acknowledging the technophiles who know firsthand the benefits of adopting new technologies, the report calls out advisors who are lagging behind in promoting e-delivery because they’re “constrained by technical and behavioral reasons.” Financial professionals' "lack of knowledge or support" tops the list of obstacles to e-delivery adoption, cited by almost half of the Beacon survey respondents (46%). Apathetic advisors rank higher than security issues.
Investors are described as the least committed group, characterized by their “lack of knowledge, overall indifference and the inability to change old habits by both advisors and investors.”
Paper Isn’t Free
“Someone should have to pay for the paper.” That, the report says, is the position that custodians and other financial organizations are taking.
The cost of a paper securities business is enormous. The all-in cost of printing, mailing, handling, filing and disposing of a (full version) 40 plus-page prospectus or semi-annual report is estimated in the range of about $13 to $18 per piece. Such a waste of money, time, effort and resources.
Today, according to the report, custodians use three methods to encourage e-delivery adoption: charging retail investors (58%), charging advisors (33%), and offering a financial incentive to retail investors (42%). But again, the status quo has yet to make an impression.
In the context of slow and lagging electronic document adoption, what’s going to light the fire? Will it be a shift of more cost to investors and/or advisors?
“Charging investors for paper delivery—as little as a few cents per document—could go a long way to increase their cost-consciousness. If an investor were charged even a few cents for a physically delivered paper statement, or even more radically, charged for a 40 plus-page prospectus, then the investor would be presented with a choice. Pay a small amount to deliver by paper, or zero to deliver electronically. Paper would no longer be free,” says the report.
Beacon acknowledges “relationship pressures” that could keep the nuisance charge from ever hitting certain clients. Instead, it would be absorbed by the advisor or broker-dealer. At $13 a piece? Right, that could hurt.
It seems inevitable that one way or another and, probably with increasing urgency, the investment business will be weaned from paper.
After all, the industry has distinguished itself in all manner of ways as innovators on the product side.
And, one rarely hears that the electronic delivery alternatives are inferior to paper. (Although the Pershing report says “firms’ disparate user interfaces, processes and forms create challenges for learning and user experience. The outcome is that investors often find e-delivery more trouble than it is worth.”)
It will be an interesting transition—likely to be characterized by both carrot and stick approaches—to watch. Or, if you’re a digital marketer who believes that creative communicators have more to contribute to the team, to play a role in hastening.