Fund Facts fast relief

This means a large proportion of the fund managers in Canada — including big players such as AGF Investments Inc., Fidelity Investments Canada ULC, Invesco Canada Ltd. and Mackenzie Financial Corp., all based in Toronto, and most of the big banks’ asset-management arms — won’t have to wait for rules that mandate delivery of Fund Facts to kick in before they begin doing so.

Effective immediately, any dealer selling the specified companies’ funds will be able to give clients the shorter, more concise Fund Facts documents rather than the full prospectus in the days after they purchase a fund — subject to certain conditions.

“Essentially, all this is doing is accelerating the timeline of what the regulators have been proposing themselves,” says John Hall, national leader of the investment management group at Borden Ladner Gervais LLP in Toronto.

Since the first stage of the new fund disclosure regime came into force earlier this year, fund companies have been required to have Fund Facts documents filed with regulators and posted on their websites, and financial advisors must provide the documents to clients who request them.

Mandated post-trade delivery of the Fund Facts documents is part of the second stage of the new disclosure regime. The CSA has published proposed regulatory amendments that would implement these requirements, which are out for comment until Nov. 10. As the process of implementing these regulatory changes will likely be lengthy, the CSA had indicated last year that in the meantime, it would consider applications for exemptive relief to permit the early use of Fund Facts.

Companies were keen to apply, according to Hall. Having already dealt with the high costs and extensive efforts associated with producing Fund Facts forms for every class or series of mutual fund, they were eager to see the new and improved disclosure documents being delivered.

“If the starting point is the assumption that Fund Facts are a good idea at all,” says Hall, “it doesn’t make sense to me to have somebody have the cost of producing it if nobody is going to be ever really looking at it.”

Although the forms are available on the System for Electronic Document Analysis and Retrieval and on fund companies’ websites, adds Hall, “that doesn’t translate to them really getting into the hands of that many investors.”

However, not everyone is convinced that Fund Facts represent an improvement in disclosure. The forms have elicited a wave of criticism from investor advocates, who argue that Fund Facts don’t include enough pertinent information about a fund — especially if investors will no longer receive the prospectus.

“The existing [Fund Facts] is flawed and does not go far enough,” said the Canadian Foundation for the Advancement of Investor Rights (a.k.a. FAIR Canada) in a letter to the CSA in July. “Until such time as Fund Facts is improved, regulators should not contemplate permitting it to replace the simplified prospectus.”

But many fund companies, such as Toronto-based Franklin Templeton Investments Corp., are in favour of the plain-language Fund Facts forms and have applied for exemptive relief in order to get them out to investors sooner rather than later.

“History shows that people aren’t reviewing the current disclosure — the prospectus and the [annual information form],” says Brad Beuttenmiller, senior vice president and chief counsel with Franklin Templeton. “If you subscribe to the idea that Fund Facts provides more concise, meaningful information, then, obviously, you’d want that in the hands of investors who are making their decisions and advisors.”

Another key benefit of delivering Fund Facts instead of the lengthier prospectus is cost savings. “[Fund Facts is] a vastly shorter document,” Hall says, “so [fund companies] have less cost to produce it. And, from a dealer’s perspective, less cost to mail it out to investors.”

Under the proposed delivery rules, firms still must produce prospectus documents and annual information forms, but these documents must be delivered to investors only upon request.

Although relief has now been granted, it will still take time for many firms to implement post-trade delivery of Fund Facts.

“I’d hoped it would have moved more quickly than it is,” Beuttenmiller says. “We’re just trying to figure out how to put it into effect or operationalize it.”

Companies must update their systems to accommodate delivery of the new Fund Facts and ensure they’re compliant with all conditions of the relief. For instance, one condition specifies that investors must receive notice that the rights of withdrawal and rescission that apply to the delivery of a prospectus also apply to the delivery of Fund Facts.

Fund companies must also ensure that dealers are prepared to accommodate the new disclosure. The conditions specify that dealers wishing to rely on the relief must have in place the written policies and procedures necessary to comply with the exemption.

“It’s a logistical exercise to co-ordinate this with the dealers,” Beuttenmiller says.

Once companies begin delivering Fund Facts, Hall expects more companies to apply for exemptive relief — especially if it becomes clear that the regulatory process is moving slowly.           IE