Are “outlook” comments in MRFPs required?

At least every six months, communications, product and investments teams gather to produce MRFPs for mutual funds and ETFs.

While it’s unlikely that MRFPs are your most-read documents, it’s important to deliver on what’s required – to keep your current and future investors informed about the issues that affect their investments and to meet your regulatory requirements.

Should you or shouldn’t you include “outlook” comments in your MRFPs? The regulatory language is vague, and it puts the onus squarely on those responsible for producing the MRFPs.

In this article, we refer to “National Instrument 81-106 Investment Fund Continuous Disclosure” (“NI 81-106).

NI 81-106: Language specific to outlook comments

NI 81-106 is a big document. Even though it’s a little intimidating, it’s worth reading a few times. There are two sections that we want to focus on for this article. The first is 2.4 Recent Developments:

“Under the heading ‘Recent Developments’ discuss the development affecting the investment fund, including … known material trends, commitments, events or uncertainties that might reasonably be expected to affect the investment fund.”

The second is a little further down in the document, in INSTRUCTIONS (1):

“Preparing the management discussion necessarily involves some degree of prediction or projection. The discussion must describe anticipated events, decisions, circumstances, opportunities and risks that management considers reasonably likely to materially impact performance. It must also describe management’s vision, strategy and targets.”

So far, we believe the NI 81-106 is clear on the matter: include outlook comments. But the vagueness arrives quickly.

Watch out for promissory language

Immediately after the instructions above, we find this sentence:

“There is no requirement to provide forward-looking information.”

By this, we take it that regulators are referring to performance-specific comments. Your portfolio managers and sub-advisors should not promise performance in their outlook comments, and regulators are well aware of that.

“Forward-looking information,” however, could also encompass anything that refers to the future.

It’s up to you

MRFPs were created in the spirit of keeping Canadians better informed about their investments.

If you include outlook comments in your MRFPs, write about possible events that may affect fund performance and future activity in the fund. For example, a corporate bond fund will be affected by changing interest rates. That might be obvious for people in the investment industry, but may not be quite as obvious for investors.

If you don’t include outlook comments, create a brief business case for why you chose not to do so. If your firm believes there is a business risk to including these kinds of comments, have an explanation as to why. Also, be sure to highlight that your outlook comments won’t deliver on the regulators’ intentions. Keep this on hand in case you’re asked about your choice.

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