{"id":1508,"date":"2024-05-08T13:26:57","date_gmt":"2024-05-08T13:26:57","guid":{"rendered":"https:\/\/financeify.ca\/?p=1508"},"modified":"2024-05-08T13:26:57","modified_gmt":"2024-05-08T13:26:57","slug":"pos-rules-are-too-simplistic-expert","status":"publish","type":"post","link":"https:\/\/financeify.ca\/index.php\/2024\/05\/08\/pos-rules-are-too-simplistic-expert\/","title":{"rendered":"POS rules are too simplistic: Expert"},"content":{"rendered":"

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\nCanadian Securities Administrators’ National Instrument 81-406 is too simplistic and will cause logistical problems for a major mutual fund distributor, says a prominent securities lawyer. <\/p>\n

Announced last year, one of the pillars of the 216-page NI 81-406 proposal is the implementation of a fund information document that must be shown to a client before the sale of not only mutual funds but also segregated funds. <\/p>\n

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The two-page Fund Facts document is written at Level 5 and is designed to provide basic information about the fund as well as the compensation of the advisor and fund companies. An announcement of the enactment of NI 81-406 is expected later this month.<\/p>\n

During a presentation on Friday ahead of the Strategy Institute’s Conference on Regulatory Readiness Strategies for Portfolio Managers, the Investment Board’s Rebecca Cowdery said the CSA’s proposed legislation appears to have been created in a vacuum, with no consideration of other policies already in place in the fund industry or the fact that most fund sales are conducted by advisors. <\/p>\n

\u201cThe important role of the dealer is underestimated. You can’t buy a fund without going to a dealer. There are a lot of regulations for mutual fund dealers,\u201d said Cowdery, a partner in Borden Ladner Gervais’ investment management group. \u201cThe MFDA regulates mutual fund dealers. They must check suitability – as per the MFDA’s recent 28-page suitability notice – they must recommend a fund that is suitable for your investment. What do you get from a two-page notebook written at a fifth-grade level?\u201d <\/p>\n

Other information on registration reform will also be linked to NI 31-103, which the CSA wants to implement by March 2009. Cowdery says there is criticism as to why the Funds Facts Document is being produced separately from the legislation in question. Instead, it would make more sense to harmonize point-of-sale disclosure documents with the know-your-customer process. <\/p>\n

\u201cThe assumption is that investors will make better decisions based on a two-page document that is too simplistic to contain much information, let alone effective information,\u201d she said.<\/p>\n

There is also the logistics of providing a factual document, which once again seems to disregard the dealership model. Cowdery says point-of-sale rules will require a financial fact check not only for each mutual fund mandate, but also for each class. They must be physically shown to the investor before purchase. <\/p>\n

For a larger fund company with multiple mandates and classes, this could mean creating over 2,500 unique fund documents. The advisor will need to have hundreds of paper documents on hand to prove financial facts.<\/p>\n

Cowdery also notes that the emphasis on physical paper seems an archaic principle in an increasingly electronic environment. <\/p>\n

\u201cShould dealers go to their customers with 200 of these documents confirming financial facts?\u201d she said. \u201cIs this true or do investors want a piece of paper to read? Why does this only apply to mutual funds?\u201d <\/p>\n

This is another major concern for Cowdery – regulators unfairly burden mutual funds that offer a continuous offering. Mutual funds are subject to burdensome disclosure standards that are not required even in the public securities market from which most disclosure concepts are derived. <\/p>\n

\u201cAn investor purchasing an investment fund will have different remedies than an investor who purchased an investment fund on the secondary market,\u201d she said. \u201c(Traditionally) if you buy into an investment fund, you don’t have any rights. Currently, liability is written into the statute when an investor wishes to redeem and any continuous disclosure documents, including sales communications, contain false information. The compensating investor will be able to exercise this right to claim compensation.\u201d <\/p>\n

While Cowdery admits this could be a “doomsday” scenario, Cowdery doesn’t believe it’s out of the question that mutual funds will stop for some core investment products if point-of-sale rules are implemented in their current form. <\/p>\n

\u201cIf they continue to focus on mutual funds and segregated funds, you know what dealers will focus on?\u201d she asked. \u201cThey’re going to focus on something that’s easier to sell. They are going to recommend something that is easier to recommend.\u201d <\/p>\n

Posted by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com<\/i><\/p>\n

(09\/06\/08)<\/i><\/p>\n

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Canadian Securities Administrators’ National Instrument 81-406 is too simplistic and will cause logistical problems for a major mutual fund distributor, says a prominent securities lawyer. Announced last year, one of the pillars of the 216-page NI 81-406 proposal is the implementation of a fund information document that must be shown to a client before the […]<\/p>\n","protected":false},"author":1,"featured_media":1509,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[18],"tags":[831,829,436,830],"class_list":{"0":"post-1508","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-seg-fund-investments","8":"tag-expert","9":"tag-pos","10":"tag-rules","11":"tag-simplistic"},"aioseo_notices":[],"yoast_head":"\nPOS rules are too simplistic: Expert - Financeify<\/title>\n<meta name=\"description\" content=\"Canadian Securities Administrators' National Instrument 81-406 is too simplistic and will cause logistical problems for a major mutual fund distributor,\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/financeify.ca\/index.php\/2024\/05\/08\/pos-rules-are-too-simplistic-expert\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"POS rules are too simplistic: Expert - 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