The Joint Forum of Financial Market Regulators today released proposals for a new point-of-sale disclosure regime that would cover both mutual funds and segregated funds.

The regulators say that the current disclosure regime isn’t working because, “Many investors have trouble finding and understanding the information they need because it is buried in these long and complex documents. Investors also find it difficult to compare information about different funds.”

“In addition, investors may not receive the documents before they make their purchase decision. Dealers
must send the prospectus to mutual fund investors within two days after the purchase transaction.
Segregated fund investors must receive the information folder at the point of sale, but may not receive the insurance contract until after the sale,” they note.

The regulators indicate that the current disclosure regime does not meet their vision of providing investors with meaningful information when they need it most — before they make their decision to buy a fund.

The framework they are proposing aims to address the shortcomings of the current regime by focusing on
three principles: providing investors with key information about a fund; providing the information in a simple, accessible and comparable format; and, providing the information before investors make their decision to buy.

“We want investors to have a basic and correct understanding of the potential benefits, risks and costs of investing in a fund and to be able to meaningfully compare one fund with another. To do this, we need to make sure the information is presented so that most investors will choose to read it. It must be short, informative, friendly and in plain language,” the regulators say.

With those goals in mind, regulators have developed a new right of withdrawal, developed and tested a fund summary document, and developed new delivery options and the regulatory requirements for preparing and filing the document. They dropped an earlier idea to create a consumers’ guide after developing and testing the fund summary.

The proposed framework includes a new two-page disclosure document that is designed to highlight critical information, including funds’ performance, risk and cost. “This information will be presented to investors when they need it most — before they make a decision to buy a fund,” the regulators stress.

This latest initiative follows from a consultation paper published back in 2003, that proposed reform of the point of sale disclosure regimes to create material that investors would read and be able to understand.