Marketing vs. Regulatory Disclosure
I recently attended a conference entitled “Does Disclosure Work?” hosted by the Capital Markets Institute and the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) at the University of Toronto’s Rotman School of Management. The first question and answer between the moderator and panelists was:
“What single thing would help improve disclosure to retail investors?”
“Send the material to investors by email prior to them making a decision.”
While this is a seemingly straightforward question and intuitive response for the need to provide meaningful information to investors on a more timely basis and before they make their investment decision, it is not without its complications. That’s because currently, most of the material that investors receive prior to making a decision has traditionally been marketing information created by sales and marketing professionals within the investment firms. In the case of the Canadian mutual fund industry (where more than 85% of mutual funds are sold by financial advisors), there is no shortage of marketing material that the fund companies and dealers make available to advisors and their investors to influence their decisions as part of the sales process.
However, new regulations in Canada (e.g. Point of Sale Stage 3 and CRM2) require the delivery of legal disclosure information around fees and other aspects of the investment, prior to the investor making his or her purchase decision. In the case of mutual funds, this ‘Fund Facts’ is a legal document that must be delivered to investors and without which, advisors and dealers will not be allowed to sell the mutual fund and which compliance officers will be quick to audit. A little known fact concerning investor rights (i.e. The Right of Rescission) is that investors who can prove they did not receive the Fund Facts document for a given mutual fund purchase, can later get out of the trade regardless of how far under water their investment and how long they’ve owned the fund.
If a marketing communication misses its mark, an email is blocked or a message ignored – oh well. But if a disclosure document goes missing or is not delivered at all, that becomes a more serious matter.
All this is to say that investors may soon be inundated by marketing communications and regulatory disclosure before they make their purchase decision. These will be potentially muddy waters where marketing managers and legal and compliance officers will compete for the investor’s attention.
Tags: Delivery, Regulatory