The Ontario Securities Commission’s Capital Markets branch compliance team has issued a report summarizes the results of its portfolio manager reviews from April 1, 2004 to March 31, 2006.

It notes that there was no change in the types of common deficiencies compared with 2003 and 2004.

The average field review of ICPMs in 2005 and 2006 found 14 deficiencies, the OSC reported. Five or 35% of these deficiencies were identified as significant.

Areas where ICPMs have improved since 2003 and 2004 include: fairness policy, statement of policies, portfolio management including advisory contracts, and registration issues.

But they need work on: marketing, personal trading, and KYC and suitability information. “The most negative trend was in marketing. Marketing issues were also identified as the number one significant deficiency. In general, ICPMs have become more aggressive in their marketing materials and websites. In many instances, they presented performance returns that could not be substantiated. Personal trading, and KYC and suitability information are other areas showing an increase in the number of deficiencies over past years,” it noted.

To address the problems with marketing compliance, the OSC will be conducting a sweep in the marketing area during fiscal 2007. “The sweep will focus on key areas such as composite construction, review of marketing materials, performance returns, use of benchmarks and back-tested performance data,” it says. “We will continue to focus on areas such as personal trading, KYC and suitability information in our regular compliance reviews.”

This report includes the combined results of reviews of investment counsel and portfolio managers for fiscal years 2005 and 2006. During this period, it performed fewer ICPM reviews because significant resources were allocated to: the mutual fund market timing probe, scholarship plan dealer reviews, hedge fund manager reviews, and limited market dealer reviews.