The widespread practice of touting investment industry awards in mutual fund advertising must stop, suggests a new report from the Ontario Securities Commission (OSC).
That directive is contained in the July 2015 issue of the Investment Funds Practitioner, which is published by the OSC’s Investment Funds and Structured Products Branch.]
The primary issue, the OSC report says, is the subjective aspect of these investment industry awards. The mutual fund rules generally do not allow the use of performance ratings that include a subjective component in mutual fund advertising. Although the rules do allow funds to use ratings and rankings from “fund rating entities,” there’s concern that investment industry awards, even those given out by rating entities, have a subjective element to them that disqualifies them from use in regulated sales communications.
“In staff’s view, given the subjective component of industry awards generally, these awards are typically not a rating or ranking permitted to be used in a sales communication for a mutual fund,” the OSC report says.
Although the OSC report acknowledges that references to industry awards in sales communications appears to be a widespread practice among mutual funds and exchange-traded funds, the regulator’s staff’s view is “that this practice should be discontinued,” the report says.
“Staff recognize the importance of sales communications and strongly encourage [fund managers] and their counsel to contact staff regarding sales communications that may give rise to questions concerning this issue,” the OSC report concludes.