The Ontario Securities Commission’s (OSC) Investor Advisory Panel (IAP) has come out strongly in favour of the Canadian Securities Administrators’ (CSA) move to require pre-sale delivery of the new Fund Facts disclosure documents, saying that it will improve client-advisor relationships, and investor results.

In a comment letter to the CSA dated April 30, 2014, the IAP says that it applauds the regulators for “introducing this meaningful disclosure regime”. It notes that “Post-sale delivery of Fund Facts never met the regulatory intent of disclosure.”

The Fund Facts disclosure regime was originally created in a bid to make disclosure clearer and more useful, and to improve investors’ ability to compare the fundamental features of mutual funds and segregated funds. However, industry objections to the original pre-sale delivery requirements led the CSA to adopt a staged approach to implementing the new regime; and, as a result, it has yet to require pre-sale delivery. Now, the CSA is proposing to require pre-sale delivery for all mutual fund sales, subject to a limited exception where the client demands immediate trade execution (the comment period closes May 26).

The IAP says that the move to require pre-sale delivery of Fund Facts lines up with the disclosures that will be required under phase two of the Client Relationship Model reforms (CRM 2). “The key CRM 2 requirements include pre-sale disclosure of fees, as well as trade confirmation and client statement disclosure requirements,” it notes.

The panel endorses the CSA’s proposed approach to requiring pre-sale delivery of Fund Facts, and stresses that any situations where the exception is invoked, the dealer should document the request, and the client should receive verbal disclosure of the salient features of the recommended fund.

It also suggests that pre-sale delivery should not be required for discount brokerage clients. “The very definition of a DIY investor is that they do their own research and analysis,” it notes. “We recommend instead that the CSA mandate a series of funds tailored to the DIY investor that can be purchased without trailing commissions.”

Additionally, the IAP says that the Fund Facts disclosure approach should be extended to other sorts of investment funds, such as exchange-traded funds, and, “to the greatest extent practicable, be harmonized with similar products in the banking and insurance sectors.”

It also recommends that the CSA prepare a companion guide for investors on how to use Fund Facts to make investment decisions. And, it reiterates its concern with one of the key elements of the Fund Facts, the disclosure of risk. “We believe the proposed risk disclosure based on standard deviation is misleading and inadequate,” it says. The CSA is considering changes to the risk disclosure component of Fund Facts.

“The panel strongly supports the CSA in requiring pre-sale delivery of Fund Facts,” the IAP concludes. “Pre-sale delivery of Fund Facts will increase investor protection, improve the investor-registrant relationship and yield better outcomes.”