Inclusion of yield or distribution rates in sales communications
Staff have recently observed a number of sales communications that include high “yield” figures (including yield figures as high as 15%), where the yield information is generally prominently displayed and emphasized over all of the other aspects of the fund referenced in the sales communication.
Staff remind investment fund managers (IFMs) of the requirements and prohibitions in Part 15 of National Instrument 81-102 Investment Funds (NI 81-102), which are intended to ensure that information provided to investors in sales communications is fair and balanced. Specifically, staff remind IFMs that:
(a) Sales communications must not be misleading (paragraph 15.2(1)(a) of NI 81-102).
Even where factually accurate, the inclusion of attention-grabbing high yield or high distribution rate information in a sales communication without complying with the performance data requirements in Part 15 discussed below may be misleading. In addition, when the term “yield” is used in a sales communication to refer to distribution rates, investors may interpret such information, which may include return of capital distributions, to be the actual investment returns of the fund.
(b) Sales communications that include yield information and distribution rates are subject to the performance data requirements in Part 15 of NI 81-102.
As stated in section 2.11 of Companion Policy 81-102CP Investment Funds, the definition of “performance data” in NI 81-102 includes data on an aspect of the investment performance of the fund, which can include data concerning returns and yield.
Accordingly, staff’s view is that sales communications that include yield information and/or distribution rates are subject to the performance data requirements in Part 15 of NI 81-102, including the requirement that the sales communication include standard performance data in order to provide a balanced picture of the investment returns of the fund.
The performance data requirements in Part 15 of NI 81-102 also include the prohibition on sales communications containing performance data unless the investment fund has sufficient performance history as a publicly offered investment fund. Generally, provided that the applicable requirements in Part 15 of NI 81-102 have been met, a sales communication relating to an investment fund that has distributed securities under a prospectus or that has been a reporting issuer, as applicable, for at least 12 consecutive months may contain performance data such as yield information and/or distribution rates. This is intended to ensure that any performance data included in a sales communication is supported by historical results. Staff remind IFMs that targeted or annualized yield or distribution rate information would generally be considered to be hypothetical performance data.
Staff encourage IFMs to review the article titled “Yield/Income Funds Review” that was originally published in the Investment Funds Practitioner in April 2012.
Staff have begun conducting issue-oriented reviews focused on sales communications that include attention-grabbing high yield figures and/or distribution rates. During these issue-oriented reviews, staff have been asking IFMs to remove misleading statements from their sales communications, including websites and other marketing materials. Staff will continue to consider whether future policy initiatives are needed in this area.