SEC proposes XBRL mandate for Investment Management Companies

Jeff Phillips, Director of Marketing for Investment Services at Bowne, tuned in live to the SEC's webcast today about how the XBRL mandate will roll out to Investment Companies.

"Unless I'm misinterpreting what they said, I think Funds got a pass. Without having to really be ready until January 2010, they have time to look at multiple solutions and determine how to fit into workflow. It does not look any of them have the pressure of the accelerated filers. Here's what was said at today's meeting, written as it happened, I'll post on the full proposed mandate when it is released."

Notes on the SEC Open Meeting Call on XBRL for Investment Companies, 10 am  5/21

C. Cox

1) Mutual Funds special area of interest because popularity with investors

a) 88 million in funds, hold 86% of assets

b) 8000 funds to choose from (retail)

c) How can you be discriminating investor?

2) SEC has heard these are key Investor Concerns when making fund purchase decisions

a) Risks

b) Strategy and objectives

c) Fees and expenses

d) Perf information

3) Easy to find this info in summary prospectus but difficult to compare across funds

4) Have to rely on financial professionals who may have incentives to recommend certain items

5) Now XBRL improves ability to compare

a) Interactive data viewer on website allows to view and compare

b) Download into spreadsheets

c) Very helpful for ordinary investors

6) Thanks to

a) ICI,

b) XBRL International,

c) Buddy Donahue

d) Alberto Zapata,

e) Nash,

f) Div of Corp Finance,

g) General Counsel and

h) Office IT

Buddy Donahue

1) Recommendation builds on XBRL for public companies in financial statements

2) Use XBRL to file Risk Return summary in prospectus

a) Risks

b) Strategy and objectives

c) Fees and expenses

d) Perf information

3) Goals of recommendations

a) Transform information access for mutual fund investors

b) SEC goal to empower information for investors

c) Provide benefits for fund shoppers

4) Effort began in 2004

Alberto Zapata

1) Risk Return Recommendation

a) Require funds to provide Risk Return Summary using XBRL

b) Includes

i) Risks

ii) Strategy and objectives

iii) Fees and expenses

iv) Perf information

c) Initial registration statement and any post effective statement

d) Must maintain XBRL on Fund’s site

e) Would not replace traditional formats

f) Provide new exhibit in interactive data format with registration statement filings

g) Funds must tag risk return section with standard list of tags

h) Post effective amendment must be filed after traditional format is effective, but not later than 15 days after.

i) Automatic suspension of 485B immediate effectiveness if don’t file XBRL

2) Timing

a) Initial registration statements and annual updates will be required after Dec 2009

b) Voluntary program in effect till then

c) Suspended after that

d) Still voluntary for financial investment

3) Financial Statements Recommendation

a) Increased flexibility in financials ability to file only SOI in XBRL without other info in XBRL as part of voluntary program

Chairman Cox Questions:

C. Cox: Feedback on voluntary program, easy to tag or difficult to tag?

Respondent: At outset, Funds found difficult due to lack of software and lack of viewer. It has gotten much easier for filers and investors rapidly. Now they have a viewer and expecting a comparison guide on SEC.org. The infrastructure if happening faster than for reporting companies.

C. Cox: Do we have expectations for more products coming to market from interested software companies?

Respondent: Yes, fund accounting and mgmt software will have interactive reporting and filer and investor side will accelerate.

C. Cox: Put yourself in shoes of investor, what will process be like? How use interactive data?

B. Donahue: 8000 funds that you can sort according to strategy and objectives. Tools will be helpful for financial professionals as well as regular people.

David (tech guy): There is an opportunity to build additional tools for more precise analysis than before with greater timeliness.

C. Cox: What have we heard from fund complexes regarding preparing to implement?

Respondent: Funds are undertaking a broad set of activities. Some are building their own software, some are using filing agents, and others are planning on building into the back office. Funds are eager to hear SEC direction so can determine what resources to commit to it and they see XBRL in tandem with summary prospectus proposal.

Commissioner. Atkins Questions

Supports rule!

C. Atkins: How many tags?

Respondent: Current taxonomy only 750 tags. Don’t expect number to grow.

C. Atkins: What is entailed in updating ICI XBRL architecture to conform to SEC archiecture?

Respondent: There is a review is in place for conforming ICI list to make everything work consistently for final set of tags. It is not a significant effort.

C. Atkins: What is general timeline for final taxonomy?

Respondent: Finished by summer 2008.

C. Atkins: Does 12/31/2009 provide enough of a cushion?

Respondent: Yes

C. Atkins: Page 71 in recommendation covers the decrease in cost from first submission to subsequent, why is cost reduction so little?

Respondent: Initial experience of voluntary participants is that they got the software for free and subsequently they will have to pay for. The numbers are based on 6 observations and it is difficult to draw strong conclusions. Everyone agrees that the initial burdens for filing are not extreme.

C. Atkins: Where do things stand for updating books and records rule for advisors?

B. Donahue: Project is important and near and dear to my heart as a former Merrill Lynch employee. We’ve been working on it for last year. We have 11,000 advisor firms registered with 75% comprised of less than 25 employees. We will make a recommendation later this year.

C. Atkins: This should be a priority as well as a recommendation for soft dollar treatment on the buy side. Make it so! (Jeff’s editorial) Plus thanks to Nancy Morris as outgoing Secretary.

Commissioner Casey Questions

Thanks to

She supports it!

Her concerns are:

· Short time frame since voluntary program started. She is not sure that SEC has a good knowledge of costs impact for funds based on small sample.

· The analysis rests on assumptions about availability of third party software and she does not think they’ve taking into account how demand will affect cost of outside servicing.

· The committee has not taken into account the burden and impact of other regulatory requirements such as summary prospectus and what the impact for Funds will be if they have to deal with both

C. Casey: How concerned or confident are we of costs based on small sample size especially for smaller funds?

Respondent: There is a concern. The 6 responses represent 10 funds and about represent 26% of AUM.

C. Casey: How many funds chose third party software as opposed to internal effort or outside agent? Can we predict what will be the demand in these areas. 

Respondent: 1 developed internally in excess of $100,000. (Vanguard). We can’t predict.

C. Casey: Why is scalability a short term issue? How will public companies affect supply of services and software?

Respondent: We think 550 complexes is more relevant number than 8800. From a technical aspect, only 40% of funds are 12/31 year ends so only a % will conflict directly with busy time for corporate filers.

C. Casey: How many funds filed financial statements under voluntary program?

Respondent: Only 2. We hope to get a better response with SOI only and that is why we have added that to the voluntary program.

Vote

Yes!, recommendation approved

Meeting adjourned.