The Mutual Fund Dealers Association is warnings its members about possibly misleading investment loan advertisements from fund managers touting leveraging strategies.

In a notice to members, the MFDA reports that its staff has become aware of communications sent by financial institutions affiliated with fund managers to MFDA members, which promote investment loans in a manner that it says is, “misleading and contrary to the best interests of investors”.

The MFDA says that the communications advertise investment loans as like “inheriting cash” or “finding cash” and state that “there is no upper limit on the amount that can be borrowed”. The loans are described as “no margin loans” and are available only if the clients invest in the mutual fund of the affiliated fund manager. These communications also typically promote the merits of leveraging strategies for clients while not mentioning the attendant risks, the regulator notes.

The MFDA reminds firms and reps that its rules require them to ensure that recommendations to clients with respect to leveraging are suitable and that a risk disclosure document be provided to clients when recommendations with respect to leveraging are made.

The MFDA says that it has, “notified the provincial securities regulatory authorities of these communications for their consideration of the fund manager’s role in promoting such activity that appears to be contrary to the best interests of investors.”