Board Notice (BN) 92 of 2014 deals with advertising, marketing and information disclosure requirements for Collective Invest Schemes (CIS). Although it is primarily aimed at the managers of CIS (managers), it also has implications for advisors who distribute CIS funds to their customers. This Board Notice will help to ensure that advisors provide their customers with clear, unambiguous information which in so doing, will ensure that the advisor adheres to the principles.
Managers need to provide investors and anyone distributing their products with information
In accordance with the BN, managers will need to provide all investors with the information required by the new disclosure requirements. The application of the BN extends to the financial services provider in that managers need to ensure that anyone marketing or distributing their CIS portfolios have the necessary procedures in place to comply with the requirements. It is especially important to provide the investor with the minimum disclosure requirements.
FSB to approve all marketing and advertising material
The BN obliges schemes to submit all marketing and advertising material to the FSB for approval. This includes all fund fact sheets, application forms and the new minimum disclosure documents. The BN makes provision for a Minimum Disclosure Document (MDD) which is not more than four pages and must be in ‘plain language’.
Disclosures also applicable to top ups and switches
The new mandatory disclosures need to be provided to investors prior to the investment being made and includes not only new investments but also top ups and switches.
In many instances advisors do not provide any further disclosure on funds (fund fact sheets; performance; cost) for top ups or switches. Although the disclosure requirement lies with the manager, advisors will have to pass these disclosures on to their customers. The new disclosure requirements encompass ‘vanilla’ CIS, Exchange Traded Funds (ETFs), money market funds, foreign currency-denominated unit trust funds and performance data.
Information that must be disclosed
The disclosures must cover fund objectives, fund risk profile, performance and costs and must be updated quarterly. CIS funds will also need to report on asset changes and how the fund performance measures against the fund’s stated objectives.
Outcome 3 of the TCF principles is that of Clear Information. This outcome is to ensure that customers are given clear information and are kept appropriately informed before, during and after the time of contracting. The Minimum Disclosure Document should help advisors in making sure that their customers have all the information they need to make an informed choice.