Striking the right balance….or just plain “goon headed” wrong!

Joanne De Laurentiis, President and CEO of the Investment Funds Institute of Canada penned an Investment Executive article on the new Fund Facts document.

Brief comments on this article interlaced with excerpts from the article are provided:

“When it comes to retail investors, how much information is enough? How much is too much?” International bodies, regulators, consumer advocates, and the industry itself strive continuously to find the right balance..

The article fails to mention the level of responsibility the investor is taking with respect to the investment decision and fails to address the very low minimum standards of the Canadian retail financial services’ market place.   Levels of consumer responsibility, advisor and industry accountability are respectively far higher and far lower than progressive international regulators would allow.   The consumer needs to know the real relationship, as i have said many times, before they can judge just how much is enough information.  As for striving to find the right answer, yes, many international regulators are doing all they can to achieve an optimal solution, but Canadian regulators, no, anything but.

“Each investor has a different level of financial literacy, desire for detail, objectives, and tolerance for risk. These factors, among others, mean that disclosure will always be a matter of achieving the optimum result, not perfection.

The Canadian Securities Administrators has taken an important step toward finding the right balance by mandating Fund Facts. Canada joins countries at the forefront of implementing principles for investor point-of-sale disclosure established by the International Organization of Securities Commissions.”

By mandating fund facts in the current regulatory format, which is far different from that operating (and soon to be installed) in many international jurisdictions, the CSA has served only to maintain a status quo firmly balanced in favour of the securities industry, and has by no means attempted to balance the needs, rights and responsibilities of the ordinary investor against those of the industry.  

Canada is far from the forefront of international regulation of securities reform and anyone suggesting so should take a look at the reforms currently being implemented in the UK and Australia.  To suggest otherwise is perverse, mendacious, subversive and just plain goon headed wrong. 

Fund Facts was developed in direct response to investors who were tired of trying to make sense of complex documents apparently written more to satisfy legal requirements than to be an accessible guide for investors. The key areas disclosed in Fund Facts are aligned with what investors said they wanted to see. This came through loud and clear in findings from research conducted by regulators and the industry. The result is a product that is light years removed from the dense prose of prospectuses and other mandated disclosure materials that fill blue boxes across the country.

I am sorry, but these documents are simple documents with profound legal implications, for that is the substance of the very low suitability standards in the Canadian system.   Again, if only the consumer were aware of the actual relationship they would not find these documents comforting.   The research conducted by Canadian regulators and industry was anything but thorough and woefully insubstantial.  A quick read of international research on this matter would place a big fact boot into the backside of this article whose arguments are not supported by the vast majority of research on this subject.

Because the Fund Facts document is available through many channels, investors have easy access to the information they want about their fund’s investments, performance, risk rating, costs and their rights should they change their mind about owning the fund. They can also easily compare funds in the same category.

The fund facts do not provide information about a fund’s relative risk and return nor many other of the factors needed to properly make an investment decision.  And because the fund facts can be delivered after the fact, the investor really has little opportunity to change their mind.  As for being able to compare funds in the same capacity, this is again just plain “goon headed” wrong.

But the real intent of this article is clear: the industry have to support Fund Facts because otherwise it would fail in its regulatory intent.   Responsibility for the transaction must be kept solely in the investor’s court and because of this, the new sparkling, mind bending, earth shattering, stroke of brilliance we call Fund Facts must be supported at all costs.  And, of course, our regulators support it, so it really does not matter if it is a piece of ordure, it has the blessing of the powers that be.

As Steve Waldman says in his blog: “ The core purpose of status quo finance is to coax people into accepting risks that they would not, if fully informed, consent to bear.”

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