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BCO
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Study Guide
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SeeWhy Financial Learning
6
Disclosure (Chapter 6)
The initial contact between the mutual fund advisor and the client establishes a business
relationship. For instance, even if you met the client at a coffee shop and the conversation
turned to mutual funds, the business relationship has begun. The representative must
provide legal, ethical, and professional disclosure and service to the client.
The BCO is accountable for the knowledge of the sales representatives in the branch and
what information is disclosed to the client. The following must be disclosed:
•
Mutual funds are not guaranteed by the Canadian financial institution that sold
them to you (in other words, you can suffer a loss with a mutual fund investment).
•
Mutual funds can and will fluctuate in value.
•
If the fund is being purchased through the branch network of a bank, it must be
disclosed that the mutual fund dealer and the bank itself are separate legal entities.
•
Disclosure of the relationship between the dealer, sales representative, and client;
mutual fund offering documents; cost disclosure, performance, and client
statements (often referred to as the "client relationship model").
Performance Disclosure
There are specific rules surrounding the disclosure of mutual fund performance. For
example, it would be misleading to compare the return of an equity fund to the return on
a money market fund (which assumes much less risk) and state that the equity fund
performed better because it generated a higher return.
For this reason, mutual funds are required to report performance using
standard
performance data.
In addition, only current data may be used, and there must a
disclosure regarding past performance data, specifically that it may not be indicative of
future performance.
Finally, disclosure of the relationship between the dealer and sales representative must be
provided. For instance, it should be disclosed whether the sales representative is paid a
salary or commission (because this could potentially bias the representative).
Commissions, management fees, and trailer fees must also be disclosed.