IIAC raises concerns over fund fact document

Time is running out for organizations to voice their opinions on the proposed mutual fund point-of-sale document. But having until October 15 to submit comments doesn’t mean everyone’s waiting to speak up.

Last week the Investment Industry Association of Canada issued a release outlining its concerns with the proposed “fund fact” document — a two-page paper that simplifies mutual fund and fee information for investors.

Delivery options are one of the organization’s main issues. As it stands, the proposed fund fact document must be delivered in person, by fax, by mail or via e-mail before an investor purchases a mutual fund. That could pose problems with investors who do most of their business by phone.

“[Our members] will not appreciate that before they can proceed with their transaction, they must wait for the fund facts to be mailed, faxed, or e-mailed to them and the dealer,” says the IIAC.

Some members also have policies prohibiting distribution of client documents via e-mail to protect the company and clients from online fraud. The IIAC says that “many members tell their clients that they never e-mail documents,” while others avoid fax machines, as numbers change and sensitive data could fall into the wrong hands.

That means member firms have to mail their clients the fund fact sheet, which could take days for the investor to receive. “[This] impairs the client’s ability to transact on a timely basis,” the IIAC explains. “Clients who do not meet their advisor in person, therefore, are disadvantaged with respect to receipt of the fund facts document.”

Why can’t an investor wait a few days to get the document? In some cases they can, but in many others, especially during a fast-moving market, clients need to make a trade right away. During the week of August 13, when the markets were in turmoil, one firm, in one day, received 9,600 mutual fund transactions. “How would this have been handled if all of the clients had to wait for their mail before making the trade?” asks the IIAC.

Another timing issue is addressing when the fund facts document has to be delivered. It’s been proposed that the two-pager be given to the investor before the point of sale. The IIAC wants to know what “before” actually means. “Can delivery occur three months before the purchase? Six months before the purchase?”

It’s also wondering what happens if an investor takes a few weeks or months to decide whether or not to go ahead with the transaction.

In its letter to Neil Mohindra, the acting policy manager for the Joint Forum Project (the organization responsible for the fund fact document), the IIAC says it supports the concept of “access equals delivery.” The association says the POS form should be available on a centralized database, similar to SEDAR, where fund facts could be stored. That way, advisors can leave it up to the client to seek out the document.

If the Joint Forum doesn’t adopt “access equals delivery,” the IIAC wants clients to be able to fill out a waiver that says they don’t have to see the document if they choose not to.

Access to the POS document could negate the need for mailing a fund fact, but it would still be mandatory for the client to read the paper. While that’s great for fund newbies, it’s a strain on investors who just want to buy the same fund again.

The IIAC wants the Joint Forum to exempt subsequent purchases of the same fund. “The rationale for the fund facts documents is to make sure investors are kept informed,” writes the IIAC. “Since they will have already received the fund facts document with the initial purchase … there is no logic to having a requirement to provide the document … where it was previously received.”

The organization would also like to see an exemption for investors who want to move their money from one mutual fund into another. They say the move is often defensive in a declining market, so the ability to switch funds quickly is paramount. “If the investor is required to delay making a switch in order to receive the fund facts, it is possible … [that they] may suffer significant losses.”

The IIAC has other concerns as well. It takes issue with the question “How much does it cost?” which appears on the part of the document that discusses fees. There’s worry that clients will think their advisor has a say about the fund’s sales charges, when it is the dealer who decides the fees. “We suggest removing such specific information from the document to avoid giving a misleading impression to clients,” says the IIAC.

Clearly, the Joint Forum has much to read — the letter is eight pages long — so it’s not surprising that it has yet to remark on the IIAC’s concerns. But with a few days of comment period left, advisors will likely hear more about these issues.

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(10/11/07)

Bryan Borzykowski