On July 18, 2013, the Ontario Securities Commission (OSC) released OSC Staff Notice 81-720 – Report on Staff’s Continuous Disclosure Review of Sales Communications by Investment Funds (the Notice), which discusses findings from a targeted continuous disclosure (CD) review of the advertising and marketing materials of publicly offered investment funds conducted by the Investment Funds Branch of the OSC (Staff). Fund managers should review the Notice as it provides a good summary of Staff’s view regarding marketing materials, as well as guidance regarding regulatory obligations applicable to sales communications.

This bulletin summarizes certain topics discussed in the Notice. To access a complete copy of the Notice, please click here.


The Notice recognizes that sales communications play an important role in the business of investment fund issuers, and as such, Staff expects such communications to provide “clear, accurate and balanced messages, particularly when directed at retail investors.” Staff urges fund managers, including managers of funds that are not conventional mutual funds, to review National Instrument 81-102 – Mutual Funds (NI 81-102) and other related guidance regarding sales communications, as Staff expects sales communications, in addition to being compliant with existing technical requirements, to conform “with the spirit and intent of the rules outlined in the Notice and other staff publications.”


Sales Communications

What is a “Sales Communication”?

Staff notes that fund managers, including managers of investment funds that are not mutual funds and technically not subject to NI 81-102, should look to the definition of “sales communication” in NI 81-102 to determine whether a communication is a sales communication. Staff views NI 81-102 principles as best-practice standards for the marketing material of all types of investment funds and will assess sales communications of investment funds, including non-redeemable investment funds, based on these parameters. Staff notes that the definition is broad in terms of the content of sales communications and that a sales communication can include a reference to a specific fund or to a family of funds.

Furthermore, tweets and Internet banners can be classified as sales communications if one of the purposes of the communication is to induce someone to buy one or more investment funds. With the increasing use of social media, fund managers should review their internal policies related to electronic communications to ensure that these address the applicable regulations and the concerns identified by the Notice.

Lastly, the Notice reminds fund managers that the branding exception, which provides that image advertisements that are intended to promote a corporate identity or the expertise of a mutual fund manager fall outside the definition of sales communications, is limited and is not available if an advertisement or other communication refers to a specific mutual fund or funds.

“For Advisors Use Only”

In addition to simply labelling materials as “for advisors use only,” Staff expects fund managers to undertake a “more pro-active effort” to restrict broad distribution of marketing documents intended for advisors. However, the Notice does not provide any further guidance or examples of additional actions that Staff considers appropriate or necessary in such circumstances.

Fairness of Sales Communications

As set out in the Notice, Staff generally reviews sales communications from the perspective of retail investors when assessing their fairness. Staff notes that, among other things, sales communications should be in plain language and avoid the use of industry jargon, defined terms or acronyms and generally be easy to understand by retail investors. Information, including warnings, disclaimers and qualifications, must be given sufficient prominence in order to be consistent with the content of the document.

Staff also reminds fund managers that it expects specific information to be included in sales communications if a distribution or yield is quantified in such document, including the basis of the calculation, the percentage of total distributions comprising reinvested units, how the yield was calculated, the time period covered by the distributions, the key assumptions and the impact changes to such key assumptions may have on the target distribution or yield. Lastly, Staff cautions fund managers that return of capital distributions should not be presented in a way to suggest that they represent investment returns.

Misleading Sales Communications

In addition to setting out Staff’s general approach to assessing whether a sales communication is misleading (i.e., Staff generally considers whether individual statements “may create an unrealistic expectation or an unjustified sense of safety” for a retail investor), the Notice provides specific rules and guidance that fund managers need to consider when developing sales communications, including:

  • Sales communications for commodity pools must clearly identify the issuer as a commodity pool, how it differs from a conventional mutual fund and not refer to it as a mutual fund
  • Sales communications should not include statements that are vague or exaggerated or that cannot otherwise be verified
  • Sales communications must outline the attributes and performance of the investment fund that is actually being offered for distribution and, if a comparison is made to another investment fund not offered by the fund manager, the sales communication should include all facts that could materially alter the conclusions reasonably drawn or implied by the comparison, the relevant data and any factors necessary to make the comparison fair
  • All risks associated with the investment fund, and the nature of such risks, must be clearly disclosed and should be as prominent as any disclosure about the benefits of the fund; specifically, disclosure should include special risk factors that may not be immediately apparent to the retail investor or that are specific to the fund
  • Any disclosure of client lists in the communication should only pertain to the fund manager’s asset management business

Performance Awards

The Notice also reminds fund managers that only awards won by the investment fund are to be used in sales communications and that older awards (more than two years) may only be disclosed if these remain relevant to the current investment objectives and strategies of the fund. In general, disclosure of performance awards must comply with the requirements outlined in Section 15.3(4) of NI 81-102.

Awards to the fund manager that are not based on fund performance may be referred to in the sales communications of the fund manager’s family of funds only if such award was not for a specific investment fund. When referred to in sales communications, these types of awards should be clearly described and distinguished from an award for fund performance and the document should include details such as the name of the award provider, the ranking (if any) and where to go for additional information about the award (including the criteria upon which the award is based).

Hypothetical Data

In the Staff’s view, investment funds should refrain from using hypothetical data in sales communications intended for retail investors. However, Staff recognizes that hypothetical performance data can be appropriate in marketing materials for dealers and their sales representatives provided that there is clear and meaningful disclosure regarding the methodology and assumptions used to calculate the hypothetical performance data, as well as other relevant factors.

Alternative Media

Staff encourages fund managers to be cognizant of the different types of mediums and the form of presentation. Specifically, Staff is concerned that some Internet sites provide warning language or other disclaimers in a format that is not easily accessible. Staff notes that fund managers must ensure that the information is clear and accurate and that disclaimers are on the same page or within “one click” of the sales communication and are easily comprehensible to the retail investor.