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Regulators step up delivery of mutual fund information to investors

Fund Facts documents are a standardized two-page summary of key information about a fund.

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Investment advisers will be required to give their customers a basic fact sheet about mutual funds before they buy them – rather than receiving a prospectus after a purchase is completed – under a proposed new rule released Wednesday by Canada's securities regulators.

The Canadian Securities Administrators, an umbrella group for Canada's 13 provincial and territorial securities regulators, said Wednesday it plans to implement the final stage of a multi-year reform to the sale of mutual funds by developing a new rule requiring investment advisers to provide a Fund Facts document prior to the sale of any mutual fund.

The Fund Facts documents are a standardized two-page summary of key information about a fund, including its management costs and fees. In 2011, mutual fund companies and financial firms were required to put Fund Facts forms on their web sites for clients who want to read them, and starting in June this year will be required to deliver them to clients within two days following the purchase of a mutual fund. The final stage in the project will be requiring the Fund Facts to be delivered – in person, by mail or by e-mail – before a mutual fund is purchased.

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Rhonda Goldberg, director of the investment funds branch of the Ontario Securities Commission, said the project was launched because research showed few investors were reading mutual fund prospectuses or could understand what they said in dense legal language.

"The principle that guided us is to provide investors with key information in a format that is simple, accessible and comparable, and to provide it at a time that is meaningful to them – that will help inform their investment decision," she said in an interview.

The new rule proposals, which will be open for public comment until May 26, do not define how far in advance of a purchase the document must be provided, Ms. Goldberg said. But she said she hopes advisers will comply with the spirit of the rule by not simply handing over a Fund Facts document while typing in a buy order without ensuring a client understands the salient facts about the fund.

She said she expects regulators will follow up down the road to survey investors to see if the Fund Facts documents are being delivered properly and to see if they are working as intended to help shape decisions before a fund is purchased.

The proposed rule will include an exception when customers want to make a purchase immediately and are not able to receive a document. In that case, advisers would be required to give clients a general overview of the document verbally.

Customers who buy mutual funds online, such as from a discount brokerage firm, would see a Fund Facts document pop up on the screen when they enter a purchase order, Ms. Goldberg said.

The new rules would not apply to exchange traded funds, but the CSA said it is planning to develop a similar new disclosure document for ETFs, and expects to have a proposal out for public comment by the fall.

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Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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