Ken Winterhalter, the president of Twin Rivers Paper Co., wants the financial industry to pay for its past recklessness. His favored punishment, however, isn't jail time for chief executives or bigger corporate fines.
Instead Winterhalter has zeroed in on something a bit closer to home: stopping a Securities and Exchange Commission plan that would spur more investors to get mutual-fund reports online.
"After the nightmare of the meltdown in 2007 where millions of shareholders watched their holdings evaporate, Wall Street must remain accountable with paper statements and printed information," Winterhalter wrote to the agency after it made the proposal last year.
Winterhalter's Madawaska, Maine, company, which manufactures McDonald's french fry bags, prescription-drug inserts and a thin paper used for mutual fund documents, doesn't typically wade into financial regulation. Yet its campaign has won support from lawmakers and has been embraced by an unusual collection of allies, including postal workers' unions, the American Association of Retired Persons and consumer groups.
The effort has put mutual funds on the defensive, forcing them to plead their case for the change to SEC commissioners and buy advertisements touting the plan's environmental benefits. Costs for printing and mailing are borne by investors. Going digital would save them some $200 million annually and preserve millions of trees, the fund companies say.
Few thought the SEC's electronic-delivery push, part of a broader proposal to modernize fund regulations, would be controversial. The battle has been both bizarre and bruising, with the two sides trading accusations of hidden agendas and creative use of statistics while squabbling over issues such as whether elderly people can input a lengthy Web address. SEC Chairman Mary Jo White has yet to schedule a vote on a final rule.
Most of the SEC's disclosure requirements were issued long before people started using smartphones or even email. While investors and businesses generally agree that the agency should move faster into the digital age, the dust-up over the mutual-fund documents is a cautionary tale of how difficult that can be.
"Why are we having a debate about whether we should be sending reports out on paper?" said Tom Quaadman, senior vice president at the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, which supports the digital proposal. "If you sit down and think about this for a few minutes, there are radical changes coming in the next five years."
The SEC's move is more like a tiny first step, covering one type of document known as a shareholder report. Currently, investors get them in paper form unless they opt for digital-only. The reports, which are sent twice a year, contain information on the fund's holdings, performance and expenses, but they are also filled with fine-print legalese and marketing pitches. The proposed rule would allow a fund company to change the default delivery option to electronic.
The measure doesn't cover other fund mailings, such as prospectuses or customers' statements, and it still requires fund companies to mail a notice giving the Web address where information can be found online. The note would also have a toll-free phone number that investors could call and elect to permanently get paper delivery.
The dispute has caused both sides to make some uncustomary arguments. While the paper industry is touting the value of dense financial information, fund companies are downplaying the importance of their own reports.
According to an American Forest & Paper Association letter last year to the SEC, the reports "are critical information upon which millions of Americans depend to make sound investment decisions."
The Investment Company Institute, the funds' trade group, countered that the documents can be as long as 651 pages. "While they contain important information, many shareholders likely find the contents and length of these reports quite daunting," the trade group told the agency in March.
The SEC should keep in mind "the business opportunity they represent for paper purveyors," the association said.
Paper companies and their supporters say they are mobilizing against the measure because it could set a governmentwide precedent, marking the first time a regulator would allow people to be switched out of a paper option without their express consent.
"This development raised a red flag to us," said Mark Pitts, executive director of printing-writing and pulp at the American Forest & Paper Association.
The group has contacted members of Congress and is also lobbying through a coalition called Consumers for Paper Options, Pitts said. It includes interested parties such as the Envelope Manufacturers Association and the National Association of Letter Carriers, as well as Consumer Action, a nonprofit that advocates for low- and moderate-income people on financial issues.
While the industry doesn't hide its commercial interests, it tends to highlight the pro-consumer message.
"It is a business issue, yes, but it is a humanistic issue, too," Twin Rivers's Winterhalter said in an interview, noting that manufacturing the paper used for mutual-fund reports is a small part of the company's business. "It is key to us to protect the elderly" and others who may have trouble accessing information online.
Business on 08/24/2016