Canadian securities regulators are moving ahead with planned changes to scholarship plan disclosure requirements, in an effort to improve investors’ understanding of their features, and how best to save for their children’s education.

The Canadian Securities Administrators (CSA) are adopting rule amendments that aim to provide investors with enhanced disclosure about scholarship plans by introducing new, tailored prospectus requirements.

The new disclosure regime, scheduled to be released Thursday, features a “plan summary”, which is a short, plain language disclosure document that is designed to provide investors with key information in a simple, accessible and comparable format. The new document, which is to be no more than four pages long, will highlight the potential benefits, risks and the costs of investing in a scholarship plan. And, while it will form part of the prospectus, it must be bound separately.

The CSA stresses that this is an “important investor-focused initiative”, noting that “many investors have trouble understanding the unique features and complexities of scholarship plans.”

Indeed, it notes that these disclosure deficiencies were highlighted in a report prepared for the department of Human Resources and Skills Development Canada (HRSDC) on RESP industry practices, “which identified the need for clearer and simpler prospectus disclosure, particularly as it relates to causes of forfeiture, fees and the operation of group scholarship plans.”

Its notice indicates that scholarship plans already disclose plenty of information to investors, but that they may be too long and complex for many investors to understand. This is particularly the case for scholarship plan investors, it says, as this may be the only security that some of them purchase; many of them may have minimal financial literacy; and, some of them may not speak English or French, making disclosure even trickier. Moreover, investors also find it difficult to compare information about different scholarship plans, it says.

The CSA says that its new disclosure form tailored to scholarship plans will address the weaknesses of the existing regime with simpler, more accessible, comparable disclosure. It will also “codify some of the prospectus disclosure that is currently requested during the prospectus review and renewal process.”

Ultimately, the CSA suggests that the new regime, “… will lead to more understandable and effective disclosure for investors, enabling them to better understand the possible outcomes and risks associated with investing in scholarship plans, particularly group scholarship plans.”

“We expect the final amendments to benefit investors by providing them with disclosure that gives them a simpler, clearer understanding of the potential benefits, risks and costs of investing in a scholarship plan, and allows them to meaningfully compare one scholarship plan to another,” it says. “By making disclosure more effective, we are giving investors the opportunity to make more informed decisions. We are also enhancing transparency in the marketplace.”

“Saving for a child’s education is an important step in investment planning and these materials are aimed at providing families with information in an easy-to-understand format in order to help them make an informed investment decision,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC).

The new requirements are to take effect on May 31, subject to ministerial approval in some jurisdictions.