Useful disclosure still a long way off

Take a deep breath, all you readers working in the mutual fund industry, your trailer commissions are safe.

With the publication of a consultation paper by the Canadian Securities Administrators (CSA) last year that clearly laid out the regulators’ concerns with the industry’s fee structure and the possible reform options, the fund industry grew worried about changes to trailer fees.

But the latest step in the CSA’s Fund Facts ordeal demonstrates that there really is nothing to fear. In mid-June, the CSA finalized amendments that will require firms to deliver their two-page Fund Facts document instead of a prospectus when an investor buys a mutual fund. Yet, in defiance of the purpose of this initiative, the CSA isn’t requiring disclosure to actually occur at, or before, an investor makes their decision to buy a fund. Instead, disclosure must be delivered within two days after the transaction.

This approach completely undermines the original intention of this initiative, which was to help investors make more informed investing decisions by creating a more useful disclosure regime.

The CSA insists that it will eventually require firms to provide this disclosure at the point of sale. But how credible is that claim? It was back in 1999 that the insurance and securities regulators first published a report with recommendations concluding that disclosure has to be provided before the investment decision is made if that disclosure is to be useful.

Industry opposition to point-of-sale delivery of this disclosure surfaced when that project finally made its way to a proposed new framework in 2008. In 2010, the CSA backed away from actually requiring point-of-sale delivery. It will be four years from that point (June 2014) when these pointless, post-sale delivery requirements take effect.

Investors hoping for a meaningful improvement in disclosure should not hold their breath. And, for an industry fearful that the CSA is about to make bigger changes to its business – such as outlawing embedded commissions – the Fund Facts experience should allow members to rest easy. If the CSA takes more than 15 years to enhance disclosure modestly, surely it will be 50 years before it can manage any truly meaningful reforms.