The Ontario Securities Commission released a staff notice yesterday outlining the Investment Funds Branch's recommendations based on its observations in regards to the disclosure of fees and expenses by investment funds.
The Branch conducted targeted continuous reviews of the fee and expense disclosure practices of a sample of fund managers as part of a broader review of fee disclosure beginning in August 2013. Prospectus and continuous disclosure records were reviewed to determine whether disclosure (i) provided sufficient information to investors on how fees and expenses were being charged and (ii) accurately and fully described fund managers' allocation of expenses to the funds they manage.
Ultimately, the Branch made a number of recommendations to address identified concerns, including that: (i) prospectus and continuous disclosure documents disclose the specific services that a fund manager provides to the fund in consideration of the management fees and the types of expenses charged to the fund as operating expenses, and "catch all" terminology be avoided; (ii) fund managers consider enhancing the transparency of their expense allocation as a way to mitigate the actual and perceived conflicts of interest inherent in such practices; (iii) fund managers ensure that related party disclosure requirements are complied with; (iv) general expenses allocated to the funds have a direct relationship to the daily operation of the funds and be fair and reasonable to the funds; (v) policies and procedures exist to deal with the allocation of expenses between the fund manager and its funds; and (vi) expenses allocated to the funds be limited to certain enumerated costs.
For more information, see OSC Staff Notice 81-724.