In December 2014, the Canadian Securities Administrators (CSA) published a notice of amendments (the Amendments) to National Instrument 81-101- Mutual Fund Prospectus Disclosure (NI 81-101) and its Companion Policy (81-101 CP). In doing so, it implemented Stage 3 of its point of sale disclosure framework, imposing the obligation to deliver Fund Facts to investors before they purchase mutual fund securities governed by NI 81-101 (the pre-sale delivery requirement). The Amendments became effective on May 30, 2016.
NI 81-101 provides certain regulatory exemptions from the pre-sale delivery of Fund Facts with the purchase of mutual fund securities, one of which applies to pre-authorized purchase plans. A preauthorized purchase plan relates to an arrangement for the purchase of mutual fund securities by regular specified payments which can be terminated at any time. Each purchase of such securities would constitute a “distribution” triggering the delivery of Fund Facts were it not for the exemption.
However, as the Amendments do not provide an exemption from the delivery of Fund Facts for automatic switching programs, a number of IFMs (Sentry Investments Inc., Fidelity Canada Investments ULC and Mackenzie Financial Corporation) have sought and received relief orders from the OSC, acting under the passport program.
These relief orders contain a number of conditions similar to the regulatory exemption for preauthorized purchase plans discussed above, but also include the fund manufacturer’s obligation before the first purchase of the new series of securities to deliver to holders:
- Prospectus and Fund Facts disclosure of:
- the timing of the automatic switches
- the eligibility requirements for the holders to the various new series and the consequences of the failure to continue to meet them
- the characteristics of the new series’ lower management and administrative fees or tiered management fee reductions
- An annual reminder notice to the holders targeted by the automatic switches that they will not receive the Fund Facts upon an automatic switch unless they request it, and directions on how to access it.
In particular, the Mackenzie Financial Corporation relief order is interesting in that it specifies further notification requirements by the fund manufacturer to its principal regulator, and between the fund manufacturer and the fund’s distributing dealers notifications, disclosures and acknowledgements, prior to the dealers being able to rely on the relief order.