Every part of the fi-nancial services industry has been hit by the global credit crisis. Clients have faced great challenges over the past year as the credit crisis has had more severe and longer-lasting effects on the financial markets and the real economy than first anticipated. Canadian capital markets have been deeply affected.

Although investment funds are no exception to the situation, the industry has seen these kinds of predicaments before.

The fund industry — as the managers of more than 30% of the financial wealth of Canadians, with more than half of their accumulated savings in registered plans — realizes the important role that mutual funds, in conjunction with financial advisors, play in helping Canadians reach their financial goals and aiding them through the ups and downs of financial markets.

Diversification is a strategy that the industry and advisors have been emphasizing to clients for years. Products that use this risk-management tool have gained popularity over the years.

Well before this current crisis, the mutual fund industry introduced target-date funds, fund wraps and, more recently, retirement payout/income replacement funds.

In addition, advisors have continually gone to investors to educate them about the strategies necessary to ensure performance over the long term, such as diversification, portfolio rebalancing, dollar-cost averaging and tax planning.

These long-term efforts have paid off. For example, in the previous downturn in the financial markets, balanced fund assets made up only 16% of the market. Many investors had a large proportion of their wealth tied to narrow sectors of the economy and were hit hard during that downturn.

But, today, balanced funds — which encompass the bulk of fund-of-funds products offered to investors — make up 36% of the mutual fund market. Fund-of-funds investment has surpassed $110 billion. This increased level of diversification has helped inves-tors weather the volatility witnessed over the past 12 months — and will help them deal with whatever the market has in store for us over the next 12 months.

As well, to help ensure our industry remains vibrant, the Investment Funds Institute of Canada intends to work with regulators on a review of two key national regulations.

The first is NI 81-101, which sets out the disclosure requirements for the short-form prospectus and annual information form. Regulators have layered requirements for disclosure onto fund managers, and it is time to review and streamline those requirements. The relevancy of some of the information that fund companies are required to collect and disclose appears to have been lost. Nor is it clear who — if anyone — is using some of the data.

NI 81-102 is a rule that contains structural requirements for mutual funds, such as investment restrictions and rules on fundamental changes, purchases and redemptions. With respect to NI 81-102, the sophistication of the mutual fund industry has grown exponentially since the early days of funds.

As investors’ needs have changed, so have fund structures and investment-management techniques. But right now, further innovation and competition is being limited by a regulatory framework that does not fully recognize investment trends and developments.

We hope to work together in the future to ensure the vibrancy of the mutual fund industry and the ongoing relevancy of its products, and help Canadians save for their financial futures. IE

Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada in Toronto.