Mutual fund risk ratings

I believe the OSC/CSA is going to be publishing a document for comment on this shortly.  These are some of my thoughts, made in a recent e mail communication, that I think are relevant:

A lot of relevant points with respect to risk are intrinsically best interest issues – i.e. wider suitability issues.  

I think in the consultation the OSC/CSA need to clearly define the process that the advisor and the client are going through at the point of sale with respect to suitability and the relevance of the fund selection and hence the fund risk profile with respect to that decision.   Only by clearly defining the parameters of the process can you define the risk parameters – it is like an equation where you cannot determine the output without the relevant inputs and relationships. 

Is it both the fund and the asset allocation that are being selected or is it just the fund to fit an asset allocation profile already determined, because the risk dimension in each of these two options is vastly different?  In a process where the asset allocation has already been defined with respect to a richer set of risk parameters the POS risk disclosure can accommodate a more one dimensional representation of risk.  

I suspect the consultation will not address this unfortunately.  This dichotomy lies at the heart of the weakness of the current transaction process where not only a leap of faith but a miracle is required to reach a “suitable” outcome reliant on minimum standards.  

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