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Disclosure document needs further refinement

A proposed shorter disclosure document for Canadian mutual fund investors is an improvement over earlier forms, but needs to be made even simpler, industry officials say.

The Investment Funds Institute of Canada (IFIC) is trying to convince securities regulators to drop some of the detailed information that they are proposing to include in the fund summary. The industry is concerned about consumers becoming confused by too much information, and that the format of the new document would make compliance difficult for companies with large families of funds.

To bolster its position, IFIC released a consumer survey it commissioned from AC Neilsen-DJC Research of Toronto which involved 400 interviews with individual investors. Sixty percent of respondents preferred the new fund summary over the current prospectus document. But in individual interviews and in focus groups, a clear majority said the fund summary was too long and too detailed.

Sixty-nine percent of respondents said that at least one item could be left out of the fund summary without affecting its value to them. The items most often mentioned as extraneous were portfolio turnover, fund distributions and the size of the fund, according to the IFIC.

"Based on investor response, the fund summary is a change for the better," said John Mountain, IFIC vice-president of regulation, in releasing the survey results. "The new document is clearly on the right track for a majority of investors." At the same time, Mountain urged regulators to "streamline" the information currently provided in the prototype fund summary.

The fund summary uses plain language rather than the legalese still found in many prospectuses. Regulators proposed a highly standardized format with specifications on everything including the look of the front and back covers. Innovations include the use of bar charts and line graphs, and hypothetical scenarios to illustrate the impact of sales commissions over various holding periods.

The IFIC said the section on fund fees and expenses was particularly a problem and it suggested it be simplified. It said investors seemed most interested in the total charges to them, rather than the breakdown of fund fees and expenses provided in the summary.

The survey responses were based on fund summary documents that had been developed by a few companies for some of their funds. Global Strategy Financial, Investors Group, Mackenzie Financial, OHA Investment Management, TD Asset Management and Trimark Investment Management were among the companies that developed the summary documents.

Regulators, who are currently reviewing the response to their initial draft document released in July, have set a deadline of July 31, 1999, for the fund summary to become the main disclosure document provided to investors. Each summary is to consist of four pages, and will take over the role now played by the much lengthier prospectus. On request, investors will still be able to obtain a prospectus, but the overwhelming majority are expected to choose to receive only the summary.

Mackenzie Financial, the number three fund complex and the largest serving independent brokers and dealers, is among the companies hoping for further streamlining of the fund summary. Harold Hands, Mackenzie's executive vice president, suggested the fund summary could be cut back to two pages by eliminating repetition and less crucial information. He said the proposed four page summary is acceptable for companies with only a few funds, but becomes unmanageable for companies with dozens of funds.

Douglas Jones, senior counsel at Investors Group of Winnipeg, also said he favors further tightening.

"Some of the information is too detailed or too extensive, and the novice investor may be deterred from reading it," said Jones. More sophisticated investors or financial advisors will still be able to ask for the fund prospectus if they want more details, he said.

Fund sales up in October

Net new sales of member funds totaled $549 million in October, up from $159 million a month earlier, the Investment Funds Institute of Canada (IFIC) reported. Canadian equity funds, with $231 million in net sales in October, accounted for the largest portion of the most recent month's activity, though sales fell from $307 million in September.

The most significant contributor to the increase in October sales was a rebound in sales of money market funds. Net new sales in this category totaled $87 million, a sharp turnaround from net redemptions of $709 million in September.

Total member assets rose to $309.5 billion at the end of October, up 6.8 percent from a month earlier and 10.6 percent higher than the October 1997 figure of $279.7 billion.

Fund focuses on Internet

Altamira Investment Services of Toronto has launched Altamira e-business Fund, which will invest in technology and non-technology companies that are taking advantage of opportunities in Internet-based commerce. Gordon Cheesbrough, Altamira's president and ceo, said the new fund reinforces Altamira's reputation as an innovator. The fund's lead manager is Ian Ainsworth, but he and his team will rely heavily on advice from Intelligent Enterprise Corp., a consulting company in Toronto headed by Don Tapscott which specializes in the digital economy.

-- With reporting by June Yee.