The Joint Forum of Financial Market Regulators on Friday unveiled the final version of a proposed new point-of-sale disclosure regime for mutual funds and segregated funds.

The new regime is designed to ensure that investors “have meaningful information about a mutual fund or segregated fund before they make their decision to invest.” It introduces a new two-page document called “Fund Facts”, which highlights critical fund information, including performance, risk and cost.

The Joint Forum says that under the existing disclosure regime, “many investors have trouble finding and understanding the information they need because it is buried in long and complex documents, and information may not be provided until after investment decisions have been made.”

The framework reflects the Joint Forum’s vision for a more meaningful and effective disclosure regime, but it does not outline specific requirements for the new regime. Rather it sets out concepts and principles agreed upon by insurance and securities regulators represented by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Securities Administrators (CSA).

It has now turned the framework over to the CCIR and the CSA to begin the processes for making the necessary changes to insurance guidelines, securities rules and legislation. Each organization will follow its usual procedures to seek public input from, and consult with, all stakeholders to implement the
framework.

Regulators note that they have made some changes to the framework as a result of the comments received. It has modified the disclosures required concerning costs and advisor compensation. They also modified the approach to delivery, in response to comments that requiring the disclosure to be delivered before every purchase would impede the purchase process. “We believe that the revised approach still achieves our vision while better meeting the needs of investors and accommodating the various business models in the two industries,” the Joint Forum says says.

Additionally, the Joint Forum revised some elements of the proposed cooling-off right in response to comments and as a result of the changes to the delivery requirement.

Delivery requirements

Under the framework, the delivery requirements depend on the type of purchase and who is initiating the transaction. For initial purchases, advisors will have to deliver the “Fund Facts” before or at the point of sale when recommending a fund other than a money market fund. For initial purchases of money market funds recommended by their adviser and for initial purchases of any fund initiated by the investor, investors will be able to choose to receive the “Fund Facts” with the trade confirmation, instead of before or at the point of sale. Also, investors who have an order execution-only account will receive the “Fund Facts” no later than with the trade confirmation for initial purchases of any fund.

Disclosure will not have to be delivered for subsequent purchases of, or switches into, a fund currently held in the investor’s account or under their insurance contract. Investors will also have the option to receive annually a “Fund Facts” for each fund in their account or under their insurance contract.

Delivery options include in person, by mail, by fax and electronically, but simply making the document available on the website or generally stating that it is available on the website without specifically directing the investor to the relevant “Fund Facts” will not satisfy the delivery requirement.

Cooling-off right

As for the cooling-off right, investors will be able to cancel a purchase within two business days after receiving the trade confirmation by notifying their dealer or insurer. The investor will get back the lesser of the amount they invested and the value of the fund on the day they exercised the cooling-off right, plus any fees or charges associated with the purchase. The cancellation of a purchase will be processed the same way as a redemption.

IE