Draft Amendments to Policy Statement 31-103 on Total Cost Reporting for Investment Funds

AMENDMENTS TO POLICY STATEMENT TO REGULATION 31-103 RESPECTING REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS

1. Part 14 of Policy Statement to Regulation 31-103 respecting Registration
   Requirements, Exemptions and Ongoing Registrant Obligations is amended by replacing division 1 with the following:
   “Division 1 Investment fund managers
   Section 14.1 sets out the limited application of Part 14 to investment fund
   managers. The sections of Part 14 that apply to investment fund managers when performing their investment fund manager activities include section 14.1.1, section 14.5.2, section 14.5.3, section 14.6, section 14.6.1, section 14.6.2, subsection 14.12(5) and section 14.15. An investment fund manager that is also registered as a dealer or adviser (or both) is subject to all relevant sections of Part 14 in respect of that firm’s dealer or adviser activities.
   Section 14.1.1 requires investment fund managers to provide information that
   is known to them or which is required to be calculated by them concerning position cost, fund expense ratio, fund expenses, deferred sales charges and any other charges deducted from the net asset value of the securities, and trailing commissions to dealers and advisers who have clients that own the investment fund manager’s funds. This information must be provided within a reasonable period of time, in order that the dealers and advisers may comply with their client reporting obligations. This is a principles-based requirement. When relying on information disclosed in an investment fund’s previous disclosure documents, we would expect investment fund managers to inform the advisers or dealers of any assumptions or approximations in the information reported to the advisers or dealers. An investment fund manager must work with the dealers and advisers who distribute fund products to determine what information they need from the investment fund manager in order to satisfy their client reporting obligations. The information and arrangements for its delivery may vary, reflecting different operating models and information systems.”.
2. Section 14.14 of the Policy Statement is amended by inserting, in the first paragraph
   and after the third sentence, the following:
   “The fund expense ratio of each series of each investment fund in the account and a description of any assumptions or approximations used to calculate this ratio must also be disclosed.”.
3. Section 14.17 of the Policy Statement is amended by inserting, after the fifth
   paragraph, the following:
   “Registered firms should not include in the total amount of direct investment fund charges required to be reported under paragraph 14.17(1)(j), the amount of a charge, including a sales commission, which is required to be reported by the registered firm to the client under paragraph 14.17(1)(c), concerning transaction charges, or (f), specific to scholarship plan dealers, in order to avoid any potential double counting of such charge in the total cost amount required to be reported under paragraph 14.17(1)(l).”.
4. The Policy Statement is amended by inserting, after section 14.17, the following:
   “14.17.1. Reporting of fund expenses and direct investment fund charges

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Dealers and advisers are required to rely on information provided by registered investment fund managers pursuant to section 14.1.1. However, they may be unable to rely on such information in certain circumstances, including if:

• there is no registered investment fund manager
• such information is not required to be provided for a fund (for example,
  as in the case of certain non-Canadian investment funds)
• an investment fund manager does not comply with section 14.1.1 for
  any reason, or
• the dealer or adviser reasonably believes that relying on this
  information would cause the information delivered to a client to be misleading. In cases where paragraph 14.17.1(3)(a) applies, the registered firm must make reasonable efforts to obtain information about the investment fund’s fund expenses, fund expense ratio or direct investment fund charges by other means. Those other means may include:
• relying on information disclosed in disclosure documents of the
  investment fund other than those referred to in paragraph 14.17.1(2), including documents prepared according to the reporting requirements applicable in a foreign jurisdiction,
• requesting that the information be provided in writing by the
  investment fund or investment fund manager, or
• relying on information reported by a reliable third-party service
  provider.
  We expect registered firms to use their professional judgement in determining what other means of obtaining the information would be appropriate, notably taking into account that doing so must not cause the information reported to clients to be misleading.”.

5. Appendix D of the Policy Statement is replaced with the following:

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“Appendix D
Account Statement or Additional Statement and Annual Charges and Compensation Report Dealer ABC Inc. Your Account Number: 123-4567 Holdings in your account On December 31, 2020 Portfolio Assets Description Shares Owned Book Cost Market Value Current gain or loss Fund Expenses1 % of your holdings Investment Funds ABC Management Monthly Income Fund, Series A FE
250.00 $17,000.00 $19,500.00 $2,500.00 1.00% 41.49%
ABC Management
Canadian Equity,
Series A FE
450.00 $19,500.00 $22,500.00 $3,000.00 2.00% 47.87%
Equities
Company A
N/A
100.00 $2,000.00 $3,000.00 $1,000.00 6.88%
Company B
N/A
50.00 $1,500.00 $2,000.00 $500.00 4.26%
Totals $40,000.00 $47,000.00 100.00%

1. Fund expenses are made up of the management fee, operating expenses and trading costs. You don't
   pay these expenses directly. They are periodically deducted from the value of your investments by the companies that manage and operate those funds. Different funds have different fund expenses. They affect you because they reduce the fund's returns. These expenses add up over time. Fund expenses are expressed as an annual percentage of the total value of the fund. They correspond to the sum of the fund’s management expense ratio (MER) and trading expense ratio (TER). These costs are already reflected in the current values reported for your fund investments.

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Dealer ABC Inc. ______________________________________________________________________ Your Account Number: 123-4567 Your Cost of Investing and Our Compensation This report shows for 2021

• your cost of investing, including what you paid to us and to investment fund companies
• our compensation
  Your Cost of Investing
  Costs reduce your profits and increase your losses Your total cost of investing was $815 last year What you paid Our Compensation What we received

1. Fund expenses. Fund expenses are made up of the management fee, operating expenses
   and trading costs. You don't pay these expenses directly. They are periodically deducted from the value of your investments by the companies that manage and operate those funds. Different funds have different fund expenses. They affect you because they reduce the fund's returns. These expenses add up over time. Fund expenses are expressed as an annual percentage of the total value of the fund. They correspond to the sum of the fund’s management expense ratio (MER) and trading expense ratio (TER). These costs are already reflected in the current values reported for your fund investments. The number shown here is the total dollar amount you paid in management fees, trading fees and operating expenses for all the investment funds you owned last year. This amount depends on each of your funds’ fund expenses and the amount you invested in each fund. Your account statements show the fund expenses as a percentage for each fund you hold. Our charges: Amounts that you paid to us by withdrawals from your account or by other means such as cheques or transfers from your bank. Account administration and operating fees – you pay these fees to us each year $100.00 Trading fees – you pay these fees to us when you buy or sell some investments $20.00 Total you paid to us $120.00 Investment fund company fees: Amounts you paid to investment fund companies that operate the investment funds (e.g., mutual funds) in your account. Fund Expenses - See the fund expenses % shown in the holdings section of your account statement1 $645.00 Redemption fees on deferred sales charge (DSC) investments2 $50.00 Amount you paid to investment fund companies $695.00 Your total cost of investing $815.00 Total you paid us, as indicated above $120.00 Trailing commissions3 paid to us by investment fund companies $342.00 Total we received for advice and services we provided to you $462.00

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2. Redemption fees on DSC investments: You paid this cost because you redeemed your
units or shares of a fund purchased under a deferred sales charge option (DSC) before the end of the redemption fee schedule and a redemption fee was payable to the investment fund company. Information about these and other fees can be found in the prospectus or fund facts document for each investment fund. The redemption fee was deducted from the redemption amount you received.
3. Trailing commissions. Investment funds pay investment fund companies a fee for
managing their funds. Investment fund companies pay us ongoing trailing commissions for the services and advice we provide you. The amount of the trailing commission for each fund depends on the sales charge option you chose when you purchased the fund. You are not directly charged for trailing commissions. They are paid to us by investment fund companies. Information about fund expenses, MERs, trading expenses and other investment fund company charges, as well as trailing commissions, is also included in the prospectus or fund facts document for each fund you own. ”.