When you purchase a mutual fund you are required to receive a simplified prospectus no later than two days after making the purchase decision although you would normally expect to receive this document BEFORE making that decision. However, many investors rely on a financial advisor for recommendations and quite frankly couldn’t be bothered to read a big, daunting regulatory document. For example, one of the largest mutual fund companies in the world that also has operations in Canada has a 268 page prospectus that covers off all of their mutual funds. Granted they have numerous fund offerings covered in that one prospectus, but trying to navigate this document to find all the information you need for just one fund would take quite a while, and frankly there is a tonne of jargon in there that is pretty much only suited for an industry professional.

US moves to enhance disclosure on investment funds

In 2009, the SEC (Securities Exchange Commission, the US regulator) decided that fund companies could use what is called a Summary Prospectus to satisfy the delivery requirements for selling mutual funds so long as it contained all the pertinent information in an easily digested document. The spirit of this decision is to enhance disclosure to investors. These Summary Prospectuses must have the following information ONLY:

1. Investment objectives/goals
2. Fee and expense tables
3. Principal investment strategies, principal risks and performance table
4. Management information
5. Purchase and sale information
6. Tax information
7. Financial intermediary compensation information

The documents may not contain any additional information. As long as these requirements are met, and the long form Statutory Prospectus is available online then a fund company may use these forms to satisfy the delivery requirements.

Slow Adoption – Industry not enthusiastic about full disclosure

Not all fund companies have started using this yet. One notable exception (and there may be others) is Vanguard (a company which is actually owned by its clients). They have started rolling out these Summary Prospectuses. One is only eight pages and you can view it by clicking here to download a PDF copy. Pretty impressive stuff. Some will be even less than eight pages and if you subtract the cover and closing page (which contain nothing more than contact information) we’re getting it down to five or six pages of plain English disclosure.

So when is this coming to Canada?