You may have heard about National Instrument (NI 81-107), enacted recently by the Canadian Securities Administrators (CSA). More than four years in the making, 81-107 was created to protect investors from potential conflicts of interest at the fund management level. Basically, every investment fund must establish an independent review committee (IRC) to monitor the activities of the fund manager and make recommendations to the manager as to how any potential conflict of interest may be fairly resolved.
Both the IRC and the fund manager are required to maintain detailed records of their interactions and to prepare an annual report for unitholders. To use the terms of the Instrument itself, every IRC member is required to “act honestly and in good faith with a view to the best interests of the investment fund” and to “exercise the degree of care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.”
Why is this important to you?
Governance regulations such as NI 81-107 play a valuable role in helping to protect investors. For group plan sponsors like you, they’re a valuable indicator that a mutual fund is mandated to act in the best interests of your plan members at all times. Compliance also demonstrates a commitment to transparency and accountability — two more important criteria in selecting investment options to make available to plan members.
Other National Instruments that help to protect investors’ interests include:
- 81-101, Mutual Fund Prospectus Disclosure, which stipulates that mutual fund investors must receive a plain-language prospectus outlining the objectives, features and risks of the fund in which they’re investing;
- 81-102, Mutual Funds, which regulates all publicly offered investment funds that fall within the definition of "mutual fund" contained in Canadian securities legislation;
- 81-105, Mutual Fund Sales Practices, which establishes standards of conduct regarding fees, incentives, rebates and various compensation arrangements;
- 31-502, Proficiency Requirements for Registrants, which requires mutual fund representatives to undergo specialized training and testing and agree to abide by an established code of conduct;
- 31-506, SRO Membership — Mutual Fund Dealers, which requires that all mutual fund dealers belong to the Mutual Fund Dealers Association of Canada or other self-regulatory organization (SRO) that oversees mutual fund dealers and representatives with a mandate to enhance investor protection; and
- 33-506, Registration Requirements, which specifies the forms that must be filed with regulatory authorities in order to apply for registration as a mutual fund dealer.
Leading the way
Investment funds have until November 1, 2007 to comply with NI 81-107, but RBC Funds were fully compliant as of December 1, 2006 — almost a year ahead of the industry deadline. In fact, RBC Asset Management was already working to eliminate potential conflicts of interest that might affect investors as far back as 1994.
Acting as the independent review committee for RBC Funds is a nine-member Board of Governors led by Dr. Lloyd McGinnis O.C. as Chair and Michael G. Thorley as Vice-Chair. The remaining members of the Board bring with them years of experience and distinguished service.
Their role is to objectively review the investment policies and decisions made by RBC Funds to ensure that these are in the best interests of the fund and those who invest in them. The Board meets with fund management at least four times a year and regularly receives presentations from the fund manager’s executive officers regarding mutual fund industry issues, fund policies and internal controls.
With these reviews and a corporate culture of commitment to good governance and transparency, group plan members who invest in RBC Funds can be assured that their interests are protected. And, since plan members also receive one-on-one advice in selecting appropriate funds for their portfolio, you can feel confident that the suitability of investments for your plan members is being reviewed.
To learn more about governance issues and the steps that RBC takes to protect investors, you can download the brochure Mutual Funds and Governance: Taking Care of Your Investments
