Fund Facts Risk Disclosure Incomplete

The disclosure of risk in regulated mutual fund Fund Facts documents is currently provided on a five point scale – Low, Low to Medium, Medium, Medium to High, and High. As it stands,,the description of the risk is determined by the fund manager and the risk described captures only the "volatility risk " rather than risk more broadly. A system developed by fund industry lobbyist IFIC is the virtual risk classification industry standard although it has not been subject to public comment or regulatory approval.This simple word scale masks just how bad the loss can be under a "Medium" rating. A number of commenters have observed inconsistencies and misleading ratings using this rating system.There is no requirement to provide a benchmark and as a result there is no context provided to allow an assessment of the described risk or past volatility. In a number of surveys and research reports, respondents more frequently mention "loss of money" as their view of risk i.e. downside risk. Thus they seek a downside risk metric. Investors need to be able to put mutual fund risk and performance in context in order to make an informed investment decision. Fund Facts disclosure of risk should be improved by including a description of the principal factors that make up the “risk” of holding the fund in addition to downside risk measures such as worst 12 months. Most retail fund investors do not understand statistical metrics such as the standard deviation and should not have to. The CSA is reviewing the situation and hopefully the recommendations of investors will be considered. See our Comment letter