On May 8, 2014, the Staff of the Investment Funds Branch of the Ontario Securities Commission (Staff) released a notice setting out recommendations based on their observations from a targeted continuous disclosure review of the fees and expenses disclosure practices of investment funds.
Staff conducted a targeted, continuous disclosure review of the fees and expenses disclosure practices of a sample of 18 fund managers offering various types of investment funds, including conventional mutual funds, exchange-traded funds and closed-end funds.
Staff made the following recommendations:
1. Transparency in Disclosure of Management Fees and Expenses
- Prospectus and continuous disclosure documents should disclose the specific services that the fund manager provides to the fund in consideration of the management fees and the types of expenses charged to the fund as operating expenses. General “catch all” terminology should be avoided.
- The prospectus should provide details sufficient for investors to clearly distinguish the types of expenses, in particular the types of administrative and operating expenses, that are covered by management fees from those that are covered by operating expenses. Investors should not have to refer to the management or trust agreement for the information.
- Fund managers should clearly describe the major services paid for out of the management fees in their funds’ MRFPs, as well as provide the required line items in the funds’ financial statements. Relevant and descriptive line items, in addition to the mandated line items, should be used.
2. Transparency in Disclosure of Expense Allocation
- Fund managers should consider
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