Some mutual fund and investment dealers, swamped by tons of soon-to-be-discarded paperwork, are turning to new “print on demand” technology that lets them tailor specific data to each fund client and do away with irrelevant information.

Rather than sending out all-encompassing fund prospectuses and reports, they say, the automated procedure allows them to send only the fund data that are relevant to a specific unitholder, reducing the amount of data sent to clients while staying compliant with securities regulations.

That is a big boost in efficiency. Managing the trade confirmation process and
requirements to send out relevant material was a “very laborious and manually intensive task that was ripe for automation,” says Peter Virvilis, executive vice president of operations at Canaccord Capital Inc. in Vancouver.

Normally, when a mutual fund trade is made, dealers staff must match and marry the orders with the various disclosure documents that must be sent to clients under provincial securities laws and National Instrument 81-101, which govern mutual fund prospectus disclosure.

The rules dictate the makeup of the information that should be sent to clients, including items such as amendments and annual financial statements. These documents must be sent within certain time parameters.

Normally, the fund companies print large quantities of their prospectuses and send them to the dealers to deliver to clients who buy the funds. These documents could be hundreds of pages long and often include all of the funds sold by the company, making it confusing for unitholders to find the relevant information or understand what they are reading.

It also puts the onus on dealers or their agents to warehouse the documents and update them when new ones are delivered. They also have to make sure that the right document ends up in the right envelope.

“Any time you have a manual process, the chances of misfiling a prospectus or failing to send a prospectus becomes much more likely,” Virvilis says.

Mary Stockla, senior vice president of retail delivery channel at NBCN Clearing Inc. ,
agrees. Mailing out prospectuses is a “dirty job,” she says, that involves “tons” of paper:
“It is not our core competency to be doing printing and mailing.” The National Bank Financial Ltd. division services 60 broker-dealers.

Ditto for Virvilis. “We’re not a mail house,” he says. “That’s not what our primary objective is.”

That’s why both firms adopted Smart Prospectus, an on-demand print and mail service offered by Toronto-based ADP Investor Communications, a subsidiary of Automatic
Data Processing Inc.

Sue Britton, a senior vice president at ADP, says Smart Prospectus is a fulfillment process that automates what has largely been a manual process and includes a print-on-demand function that allows dealers to send only the relevant portions of the prospectus material.

As well, the dealer’s package can include a customized cover letter that includes the dealer’s logo, marketing messages, an explanation of what the client is receiving and the trade confirmation.

Britton says dealers simply provide ADP with a data file of client information showing who bought what. The Smart Prospectus system then culls through the SEDAR database and draws the relevant information that pertains to the trades. That information is then printed, packaged and sent to clients. In the future, unitholders automatically get any updated information that is required by law.

Britton says one of the biggest advantages is that the system “determines when the investor needs to see a prospectus” and then makes sure it is sent: “Print-on-demand also allows you to make sure you are printing the most current information and only the information you need.”

The one downside is the system shifts the print burden onto the dealers and away from
the fund manufacturers, which can increase the dealers’ costs.

Scott Sinclair, president and CEO of MRS Inc. , which provides back-office services for Mutual Fund Dealers Association firms, was a sponsor of the ADP solution, which required Ontario Securities Commission approval (received in 2003).

He notes only a few of his client firms have signed on to use the ADP system: “The channel we serve is very cost-conscious. Most of them rely on advisors to deliver the prospectus.” It’s a way for them to keep costs in check and allow advisors face time with clients, he adds.

Nonetheless, he says, print-on-demand and automation is the way of the future. The ADP tool is “a valuable service for dealers.” Manual mailings leave no audit trail to follow to ensure that the dealer complied — and it is “expensive and cumbersome,” he adds.

@page_break@Some fund manufacturers are coming around to the benefits of the print-on-demand service. AIC Ltd. has agreed to cover the costs of printing AIC prospectuses through the ADP service. CI Fund Management Inc. is also picking up the printing tab for its prospectuses.

Britton says the key to better industry adoption is getting more fund companies on board, and ADP is leading the discussions with other fund companies on behalf of dealers.

Virvilis, however, notes that cost savings is not the primary benefit. The compliance
improvement, he says, is the most attractive feature: “We are actually delivering more packages than we had historically” — which, he says, is a function of having a better system that eliminates human error. “We’re more compliant with regulations.”

So far, ADP, which also offers a print-on-demand service for annual reports, is the only firm offering such a custom solution. However, other printing houses may follow suit now that ADP has done the legwork and won over regulators on the concept, Stockla says. IE