Fund Facts complaints bear fruit

Last August, the CSA first published proposals to implement the second stage of its new point-of-sale disclosure framework for mutual funds, which require delivery of Fund Facts documents within two days of buying a fund, and would allow delivery of the documents to satisfy prospectus delivery requirements.

The CSA is now is republishing those proposals, with some notable changes to Fund Fact documents themselves. In response to the previous proposal, investor advocates complained that, among other things, the risk disclosure provided in these documents is inadequate.

In the new proposal, the CSA would require funds to add an explanation of the risk scale and the relationship between risk and losses; require a list of some of the specific risk factors that could impact a fund’s returns; and, mandate benchmarking of fund performance against a one-year GIC.

“This comparison is intended to highlight the risk of investing in a fund by illustrating how a fund may have a higher return than a GIC in some years, but its return will generally vary from year to year and may sometimes lose money,” the CSA says in its proposals.

The CSA says it also plans to test the proposed changes to Fund Facts documents with investors. It will also continue to consider mandating a risk classification methodology to identify a mutual fund’s risk level on the scale prescribed in Fund Facts documents. Any proposed requirements that would prescribe a risk classification methodology would first be published for comment, it says.

“The CSA’s proposals are an important step in the implementation of this investor-focused initiative,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission. “The proposed changes to the Fund Facts are intended to provide more effective disclosure to assist investors in making informed investment decisions.”

The proposals contemplate a six-month transition period to allow for the implementation of systems to facilitate the delivery of the Fund Facts, although it expects that systems development will begin now. the CSA is also considering whether to require Fund Facts documents be amended to include the proposed changes to the document prior to the expiry of the transition period.

The comment period on the proposals is open until September 6. In the third and final stage of this project, the CSA will actually require point of sale delivery for mutual funds, and will consider similar requirements for other sorts of investment funds. Although this would require yet another comment period.