For investors, fundamental in making the right investment decisions are having both clear, meaningful information in their hands and getting sound advice from their advisors.
The mutual fund industry has long recognized this and has been providing investors with information that is remarkably similar to the new, two-page Fund Facts that has been proposed by the Joint Forum of Financial Market Regulators.
Under the proposal (Proposed Framework 81-406: Point-of-sale disclosure for mutual funds and segregated funds) announced in June by the Joint Forum, a new, two-page disclosure document has been developed for the sale of mutual funds and segregated funds. The document would contain quick facts about the fund, such as its MER and who the portfolio manager is, the fund’s top 10 investments, how the fund has performed in the past and what kind of investor is best suited to this particular fund. It would also state the costs to the investor — specifically, advisor compensation.
The proposal provides a good opportunity to improve on the disclosure information investors receive. The last attempt resulted in the development of a “simplified prospectus” which unfortunately misses the mark: it’s not uncommon for these documents to run to 75 pages-plus and not surprisingly, investors don’t read them. Under the regulatory proposal, a simplified prospectus would still need to be filed by mutual fund managers and would be available to investors on request, but there would be no requirement to mail it to investors the way it is currently mandated.
The new short, plain-language document proposed under PF 81-406 will be welcomed by investors. A study conducted for the Investment Funds Institute of Canada by POLLARA last year indicated that 80% of mutual fund investors who were questioned expressed interest in receiving shorter, more simplified fund information.
In addition to the Joint Forum initiative, there is a proposal under the auspices of the registration reform project (NI 31-103) to revise the disclosure documents that are used to open accounts. This revision, which would be implemented through the Investment Dealers Association of Canada and the Mutual Fund Dealers Association of Canada, is designed to clarify the obligations and expectations of both the advisor and the client in the business relationship that is being established. Our collective opportunity is to eliminate duplication of these initiatives, while providing investors with the information they need.
The industry welcomes the opportunity to work with regulators to improve investors’ knowledge of the products they buy, while providing them with convenient access to a wide range of products in the manner that best serves their interests. That means ensuring that the delivery requirements suggested in the proposal do not limit customer service or access. For example, investors who have come to rely on the ability to make subsequent purchases or switches over the phone or investors who are comfortable going to a Web site to review information should be able to continue to do so without an overly prescriptive delivery requirement that could delay their purchase transactions.
The Joint Forum proposal rightly poses questions about delivery requirements — in particular, for subsequent sales and switches. The next months will provide regulators, investors and the mutual fund industry with the opportunity for well-thought-out discussions on the important question of how we provide investors with the information and guidance to help them make informed decisions without diminishing access to the products they have come to expect. IE
Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada.
Ed. note: This corrects editing errors in a version posted earlier.