Guidance on Mutual Fund Sales Practices
This article was originally published in the Investment Funds Practitioner in December 2016.
The Compliance and Registrant Regulation Branch of the Ontario Securities Commission has completed a focused review of mutual fund sponsored conferences organized and presented by investment fund managers to assess compliance with Part 5 of National Instrument 81- 105 Mutual Fund Sales Practices (NI 81-105).
Based on the results of this focused review, we wish to provide the following guidance relating to the selection of representatives attending mutual fund sponsored conferences.
Paragraph 5.2(b) of NI 81-105 permits an investment fund manager to provide a non-monetary benefit to a representative of a participating dealer by allowing the representative to attend a conference or seminar that the investment fund manager has organized if the selection of the participating representatives is made exclusively by the participating dealer, uninfluenced by the investment fund manager.
Paragraph 7.3(2) of the companion policy to NI 81-105 clarifies that the identification of specific representatives of a participating dealer by an investment fund manager to that participating dealer does not constitute compliance with section 5.2 of NI 81-105. The requirement in paragraph 5.2(b) of NI 81-105 reflects the CSA’s position that investment fund managers should generally be dealing with participating dealers, rather than individual dealing representatives, in connection with mutual fund sponsored conferences. This permits participating dealers to maintain better supervisory control over their representatives and reduces the potential conflicts that may arise between the duties owed to clients by representatives and the benefits provided by investment fund managers to those representatives.
To avoid non-compliance with the requirements of paragraph 5.2(b) of NI 81-105, investment fund managers should put a process in place that will require the investment fund manager to:
- first, contact a participating dealer's head office requesting its involvement in the selection of representatives to attend the investment fund manager’s mutual fund sponsored conference and request that the participating dealer distribute the mutual fund sponsored conference invitation to its representatives;
- ensure the opportunity to attend the mutual fund sponsored conference is available to all representatives;
- ensure the mutual fund sponsored conference is widely advertised (for example, in the advisor section of an investment fund manager’s website and/or through widely known industry publications); and
- ensure that attendance is filled in a manner that does not influence the selection of representatives (for example, attendance is filled on a first come first served basis).
Staff will continue to monitor compliance with these requirements going forward.