The Joint Forum of Financial Market Regulators is a representative committee of financial regulators from across the country, including representatives of pension supervisory authorities, insurance regulators and securities administrators. The forum recently assessed disclosure of mutual funds and segregated funds.
The forum’s view is that the current disclosure regime is inadequate. Specifically, it found that the current disclosure regime does not give meaningful information to fund investors before investors make purchase decisions, which is when this information is most required. As information tends to be buried in the simplified prospectus (for mutual funds) or the insurance contract (for segregated funds), the information is not readily available, written clearly or easily comparable between funds. The forum concluded that while the information is intended to provide necessary information to potential investors when these investors are making their investment decisions, many investors do not use this information when making their decisions.
Thus far, the changes are in proposed form only. This update outlines the five principal proposed changes to the disclosure regime and the process for implementing these proposed changes into practice.
The key change in the point of sale disclosure system in the forum’s recommendations is the introduction of a “fund facts” statement.
The fund facts statement is a two-page document organized in a question-and-answer format designed to provide investors with basic information about the fund. The fund facts statement will:
- avoid using legal and financial jargon;
- be written at a simple reading level using simple examples, tables and graphics;
- use bold headings; and
- recognize the role of the investment adviser in the sales process.
Typical topics covered in the fund facts statement include:
- an overview of the fund, including management expense ratio;
- the date of fund creation, assets under management and minimum investment (initial and additional);
- the types of investment of the fund (including the use of pie charts);
- past fund performance, including a statement that net returns for an investor will depend on that investor’s tax situation;
- the level of risk taken by the fund;
- whether there are any guarantees;
- all fees and expenses associated with the fund;
- contact information for the fund; and
- the right of the investor to avail itself of the cooling-off period discussed below.
While many aspects of the fund facts statement are expected to be prescribed by provincial regulators, there will be some flexibility with respect to the description of the fund’s features, such as the fund’s investments and the types of investor for whom the fund is suitable.
Fund managers and insurers will be required to produce a unique fund facts statement for each series or class of a fund.