New mutual fund rules beginning Monday will make fees clearer

Starting today, investors in Canadian mutual funds will get clear and concise information about what they are buying and how much it costs before being asked to buy in.

As of May 30, Canadian investment advisers and their firms must provide their clients with a document known as the Fund Facts before any mutual fund sale goes through.

The document includes basic information such as who manages the fund, what the main investments are, its historical performance and above all lay out in a clear and concise way all fees included.

Currently, that information is sometimes only made available to an investor after the sale has gone through, and often not in a clear manner.

"Investors are entitled to clear, easy-to-understand information that will help them decide whether a mutual fund is right for them before they buy it," said Bill Rice who was CEO of the Alberta Securities Commission at the time the requirements were finalized. "Delivering the Fund Facts before investors make a decision to buy provides them access to meaningful and effective disclosure at the most critical time in the investment process."

Canada's investment industry has been accused of having among the highest fees in the world, and even in cases where their performance may warrant the added costs, they are not always clearly outlined in an easy to understand manner.

The changes bring Canada in line with international standards, but some investment advisers say they still do not go far enough. Dan Bortolotti is an adviser with PWL Capital Inc. Toronto who takes issue with how some mutual funds still offer inappropriate risk profiles for non-sophisticated investors.

He cites a well known Canadian dividend fund which is 100 per cent invested in Canadian stocks that pay dividends. In one three-month period, the fund's performance was -24 per cent, and in the tumultuous year of 2008 it lost 28 per cent of its value, "yet the fund is rated "medium" for risk," he said. "I don't think most people would consider a 24 per cent loss in three months to be a medium risk."

"There's nothing wrong with this fund specifically: I just don't think any fund that is 100 per cent stocks can be called medium risk," he said.

Bortolotti said forcing investors to get access to detailed yet easy to understand information about what they are buying in advance is a step in the right direction, but no panacea.

"I am strongly in favour of any measure that will protect investors ... but this one seems pretty minor," he said.

The Fund Facts is a document written in plain language, is no more than two pages double-sided and highlights key information about a mutual fund