As part of a new package of changes, regulators are proposing a simple 2-page “Fund Facts” disclosure sheet. The idea is that potential investors would have to receive the sheet (and hopefully read it) before purchasing a mutual fund product. A similar package has been drafted for segregated funds.
Rob Carrick in The Globe and Mail (June 19, 2007) calls it a “complete success” despite the “brief” explanation of costs/fees outside of the MER. He also says that “sensibly” the document would not be made available online because the “majority of people wouldn’t bother” downloading and reading it. He calls that sensible?!
You can download the sample document off the Joint Forum of Financial Market Regulators’ website.
My comments on the draft:
Positives
- MER is clearly and prominently displayed
- Total number of names/investments is clearly shown
- Industry mix is shown
- 6-point risk scale next to the returns section (not so useful if they all get labeled “Moderate” risk)
- Section on sales charges (e.g. front-load, back-load)
Negatives
- Does not show the % weightings of the Top 10 names
- Does not show the full portfolio of names (admittedly it would be hard to fit more than 10 names on the 2-pager)
- No concept of risk-adjusted returns — I’d like to see: what is the value proposition of buying the mutual fund? For example, can the manager consistently, say over every rolling 36-month period, outperform the index? Can he/she do this with a lower portfolio volatility? … this type of data is rarely available for free.
- There is no data showing portfolio turnover — is the manager trading like a maniac?
- There are no details about how the adviser gets paid. It is left to the adviser to personally disclose their own conflicts. That in itself is a conflict!
I strongly disagree with Carrick that this is a complete success. While the initiative for a short, plain-language fact sheet is admirable, there is much more work to be done on properly disclosing what a potential investor is really signing up for — and why. And unlike Carrick, I don’t think it’s sensible not to make these Fund Facts sheets available online because I believe the retail investor should always have more access to more information.
2 responses so far ↓
1 GK // Jun 23, 2007 at 10:37 pm
I agree…coming into this field as a newbie investor, the mutual fund industry seems to enjoy keeping the consumer confused with all the fees involved. more explanation. more info is always good…
2 venter // Jun 25, 2007 at 1:09 pm
As a DIY’er who is now a financial advisor I applaud the effort to make mutual fund purchasing more transparent. I always take the time to explain how I get paid. I also show how the funds I recommend have done vrs the index and peer funds. I agree most people do not read the information available, maybe if it’s shorter and in plain English they might but I still have my doubts. They put their trust in me to do the research and invest with their best interest in mind knowing I get paid to do so, just as they get paid to do what they do for a living
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