Mutual Fund Companies Withholding Investment Risk Classification Methodology
FAIR Canada recently drew the Ontario Securities Commission's (OSC) and the Canadian Securities Administrators' (CSA) attention to the fact that in preparing simplified prospectus documents some mutual fund companies are not complying with their disclosure obligations when it comes to investment risk classification methodology. We are concerned that this non-compliance withholds essential information from investors, preventing them from understanding the level of risk provided in a mutual fund's simplified prospectus or set out in Fund Facts.
FAIR Canada and other investor advocates, including Ken Kivenko, have found that several mutual fund companies are not providing adequate risk disclosure. Instead, they are stating that the methodology used in their simplified prospectus (and reflected in Fund Facts) is the methodology recommended by the Fund Risk Classification Task Force of the Investment Funds Institute of Canada (IFIC) or is based on IFIC's methodology. IFIC is the lobby group for Canada's investment funds industry. The statements in question do not provide the necessary description of the methodology used, nor has it been available upon request, as is required by National Instrument 81-101. When FAIR Canada and other advocates contacted the fund companies, we were not provided with the methodology but were instead referred to IFIC. IFIC, in turn, refused to disclose its recommended methodology.
FAIR Canada believes that how a manager determines the level of risk of a mutual fund is a key piece of information that investors need and should have access to.
The OSC responded to FAIR Canada's letter on July 13, 2011, agreeing that more is required than simply identifying that a particular methodology is used and indicating that they will be reviewing the issues raised.
Read FAIR Canada's letter to OSC/CSA and the OSC's response .
Read more about how Fund Facts disclosure is inadequate...