Materiality Thresholds for Repayment to Investors
This article was originally published in the Investment Funds Practitioner in July 2014.
On occasion, a fund manager has miscalculated and overpaid fees from a fund's assets due to error and then proposes to make repayments to investors. In certain instances, fund managers have proposed to make repayment to affected investors only where the repayment amount exceeds a materiality threshold of $50 per investor. These fund managers have submitted that the costs of mailing and the administrative burden of tracking down affected investors are significant if the materiality threshold is set below $50, such that the actual cost to the fund manager of making those investors whole exceeds the amounts owed to them. Some fund managers have pointed staff to The Investment Funds Institute of Canada (IFIC) Bulletin 22 Correcting Portfolio NAV Errors, last updated in December 2009, as support for a $50 threshold.
Staff note that Bulletin 22 has been removed from IFIC’s public website and caution fund managers against placing too much reliance on that policy as it may be outdated. Fund managers should use their judgement in determining whether a $50 threshold is appropriate in their particular situation and be mindful of their statutory duty as fund manager when selecting a materiality threshold. In staff's view, that duty requires that fund managers have the obligation to make full repayment to investors. We continue to consider whether use of a threshold is appropriate in any circumstance and whether it is appropriate not to fully repay any overpaid amounts to investors.