Awards in Sales Communications

This article was originally published in the Investment Funds Practitioner in July 2015.

As part of staff’s ongoing continuous disclosure review of sales communications, we have reviewed selected investment fund managers (IFMs) with advertising and marketing materials that reference various industry awards. It is staff's view that awards are, in substance, performance based ratings, and that sales communications that contain references to such ratings or rankings should comply with the requirements set out in National Instrument 81-102 Investment Funds (NI 81-102).¹ Based on staff's review of the criteria and methodology applied to the selection of award winners, while the quantitative considerations are performance based, criteria generally also includes a subjective component.

The sales communication requirements for mutual funds in Part 15 of NI 81-102 do not permit the use of a performance rating or ranking of a mutual fund that is based partially on a subjective component. NI 81-102 permits the use of a performance rating or ranking in a sales communication where it meets certain requirements, including the requirement that the performance rating or ranking be prepared by a mutual fund rating entity. While other methodologies employed may fall within the definition of “mutual fund rating entity”, in staff’s view, given the subjective component of industry awards generally, these awards are typically not a rating or ranking permitted to be used in a sales communication for a mutual fund.

While staff note that the references to industry awards in sales communications appear to be a wide-spread practice among mutual funds and exchange-traded funds in the marketplace, staff’s view is that this practice should be discontinued. Staff recognize the importance of sales communications and strongly encourage IFMs and their counsel to contact staff regarding sales communications that may give rise to questions concerning this issue.