I recently reviewed the POS document from the Joint Forum of Financial Market Regulators. Given the makeup of the group I will admit I was worried they would gloss over the key points and produce a lame document. I could NOT have been more wrong!
They did not gloss over the key points when they produced the LAME document. They flaunted the fact they knew what should have been in the document, and told you why they don’t really care! It was a bold and clear statement that investor’s rights are well back of industry rights!
It looks like Joe Killoran, the over-energized investor advocate, is proved correct. His POS alternative may provide way too much information, but at least he starts from the viewpoint that investors often can read above a grade 6 level! (I can’t make this crap up; it is a requirement of the Joint Forum that the POS be written for no higher than a grade 6 level of reading. Thanks for protecting us dumb investors from all those big words like “capital loss” and “hidden-commission ”.
I began to copy sections that concerned me but quickly realized I was copying most of the document. I was reminded of a statement by Warren Mackenzie, of Second Opinion who stated “the industry is always pleased to move the investor slightly forward so long as it does not impact commissions”. But you get the point; investors get a story instead of facts and any concrete practical requirement gets so watered down it becomes irrelevant by the time you read it.
But a poor blogger like I can’t do this justice, so let’s let the Joint Forum speak for themselves. (to those who are sarcasm challenged, no such interview took place, but the quotes do belong to the Joint Forum. The witty dialogue is all mine).
Fundsellor: What's the secret to remaining so vague that this document does not give any real information to those masses of mutual fund investors?
J.F.: “It does not outline specific requirements for the new regime. Rather it sets out concepts and principles agreed upon by members of the CSA and CCIR. The framework will form the basis for implementation.”
Fundsellor: Huh?.... anything I can actually understand?
J.F. “In response to comments, we have also revised the framework to include less frequent updating and filing of the Fund Facts…. Other aspects, including the specific content under some items, will be left to fund managers and insurers to determine.”
Fundsellor: Is there any way we could make it easier to just pretend investors have the incriminating….er, necessary information to evaluate the fund?
J.F. “Electronic delivery could include, for example, sending directly to the investor an e-mail with an electronic copy of, or link to, the Fund Facts, or directing the investor to the relevant Fund Facts on the fund manager’s or insurer’s website.”
Fundsellor: So they do not actually have to give and explain the document to the investor…..slick! How did you come up with this neat dodge…er, option?
J.F.: “Many commenters were opposed to the requirement to deliver the Fund Facts before or at the point of sale for subsequent purchases because of the potential disruption to the purchase process. “
Fundsellor: Obviously we can’t have lack of vital information slowing down the sales commissions or the industry will really have a crisis to deal with!
J.F. “We have therefore excluded money market funds from the point of sale delivery requirement because they are generally of low risk..... In these circumstances, the adviser may go back to the client after the initial recommendation of a money market fund and resume the e discussion of what fund or funds may be more suitable as a longer-term investment. “
Fundsellor: I get it; no big commission equals no disclosure. That will teach investors to buy low fee products! But seriously, if I really want to sell a juicy commission product is there any way I can set it up to avoid all this?
J. F. “. If the investor initiates the purchase” (bolding by the writer not the J.Fer’s)
Fundsellor: That’s easy enough to arrange. It’s not like anybody else was in the room with us. How do we sell this gigantic loophole?
J.F. “We agree that investors who initiate the initial purchase of a fund through an adviser should be able to decide whether they want to receive the Fund Facts before or after the point of sale. “
Fundsellor: How about the prospectus. A few clients read that and then give me some flack when I maybe glossed over a few fees or risk factors. Can I escape that problem too?
J.F. “ Dealers will have to deliver the simplified prospectus to investors only on request. “
Fundsellor: Have we been able to hide any other fees?
J.F.: “A few commenters suggested adding the trading expense ratio (TER). We considered these comments, but for simplicity, we have kept the reference to the MER only.”
Fundsellor: How about the real basic stuff? I assume there is no way to get around providing meaningful benchmarks now?
J.F. “A few commenters wanted to see benchmarks added to the performance information. We considered these comments, but based on our principle of simplicity, we have not included benchmarks. “
Fundsellor: You can do that?.....I mean, well done! I don’t suppose you got rid of the risk disclosure as well?
J.F. “The framework contemplates use of the IFIC risk scale at least until an acceptable alternative is developed. “
Fundsellor: Wow, we get to use the risk ranking designed by the companies selling the funds. You guys are amazing! Next you will tell me we can still hide my fees from the investors! Sorry, that might be expecting a little too much. You folks can’t work miracles…..can you?
J.F.: We have removed the adviser compensation section and changed references from “adviser” to “firm”.
Fundsellor: so you mean I can hide behind the firm and not disclose my skim on the fees, great! Hang on. Are you sure the investors won’t figure out that they are paying all the costs for everybody? How did you word that section?
J.F.: “MER: YOU DO NOT PAY THESE EXPENSES DIRECTLY….”
Fundsellor: Wow, you guys couldn’t do better if you had all worked directly for the fund companies and advisors. Just kidding!
I noticed that the asset allocation does not show the split between fixed income, cash, and equities. How can that even be considered asset allocation?
J.F.: “Flexibility will be permitted in certain areas to allow fund managers and insurers to describe their funds accurately. These include:
-the description of the fund’s investments
-providing up to two pie charts for investment mix
-the type of allocation used for pie charts "
Fundseller: Well, thank you to the J.F.er’s on the committee for the great job. I haven’t seen so thorough a review since the Warren Commission looked into the grassy knoll! I only wish I could have smoked the “joint” your committee was named after!
Soismike: Well folks you heard it straight from at least one end of the horse! No full fee disclosure by advisors, no benchmarking, no clear asset allocation, and no proper risk ranking! Thank goodness the industry has regulatory oversight to protect us……Say it ain’t so Joe, say it ain’t so!