Disclosure of Price Information in Marketing and Sale of Securities Funds

FINANS TILSYNET Postboks 1187 Sentrum 0107 Oslo Circular Disclosure of price information in marketing and sale of securities funds CIRCULAR: 1/2024 DATE: 14.02.2024 THE CIRCULAR APPLIES TO: Management companies for securities funds Securities companies Banks

Disclosure of price information in marketing and sale of securities funds 2 | Finanstilsynet 1 Introduction The price of securities funds has significant importance for the future return of unit holders. The price is therefore an important factor when customers choose securities funds and in the ongoing evaluation of the investment. Changes in recent years have led to different pricing models for securities funds in the market. The various elements that can now be included in the total price together with the management fee, such as platform fees and in some cases also retrocession, have increased complexity. As a consequence of this development, the price of one and the same securities fund can vary, depending on which distributor the customer uses. Finanstilsynet's investigations show that the price of securities funds can be little available to customers. Several fund distributors, both management companies, banks, securities companies and affiliated agents, must convey price information better when they market and sell funds. More accessible and understandable price information will make it easier for customers to make informed decisions about their investments, and it will strengthen competition in the fund market. The circular elaborates on what Finanstilsynet will base its supervision on when following up how fund distributors inform about the price of securities funds that are marketed and sold to consumers and other non-professional customers. The circular applies to companies' dissemination of price information in digital information and marketing channels, including on websites – both open and those requiring login – and in mobile applications. Although the circular applies to the companies' digital information dissemination, the principles here also apply to marketing and sales through the other channels of the companies, such as telephone and physical meetings. The circular is limited regarding the dissemination of price information in the prospectus and key investor information for the securities fund and periodic cost reports, where the regulations in general set standardized requirements for price information. Companies must facilitate that customers actually read the periodic cost reports that companies send out. Based on investigations, Finanstilsynet recommends that companies notify unit holders via email or SMS that the report is available, and that the report has an informative file name. Companies should avoid vague names such as "fund report" and "account statement". Finanstilsynet expects the cost report to be easily accessible for unit holders when they log in to the company's website. If companies see that a large part of unit holders do not open the report, companies should consider further measures to contribute to customers actually reading the report.

Disclosure of price information in marketing and sale of securities funds Finanstilsynet | 3 2 Dissemination of price information 2.1 General about the concept of price In marketing and sale of securities funds, the company must inform customers clearly about the total price of the fund. "Price" means all costs and fees that customers must pay when they invest in securities funds. Finanstilsynet expects companies to use the method that gives customers the most comprehensive and precise description of the total price, when they calculate and set the price. The calculation must include the same underlying cost elements for all securities funds that are marketed, regardless of where the fund is established, so that the prices that are presented are comparable. Finanstilsynet also expects companies to provide clear and easily understandable information to customers about the calculation method for the price, including the cost elements that are included. Companies should use ongoing charges and fees ("ongoing charges") that are charged to the fund, as the basis for calculating the price. The calculation should be based on the costs and fees that were charged to the fund in the previous year, but with necessary adjustments for changed circumstances.1 Companies must update the price when there are changes in the management fee or other cost elements. In addition to the ongoing costs and fees, companies must calculate into the price any platform fee, retrocession and any other direct or indirect payments in the price. 2.2 Information about prices – recommended practice To protect customers in accordance with the requirements of good business practice in marketing and sale of securities funds, companies must provide consumers and other non-professional customers with balanced, clear and non-misleading information about the terms and the most important characteristics of the fund. This means that the company must inform customers about the price of the fund in a good way.2 The information dissemination in the digital information and marketing channels must reflect that the price is important, so that customers can make informed decisions about their investments. Companies must provide price information in such a way that customers can easily find the price of the funds that are offered, and companies must inform about the costs and fees that are included in the price. Finanstilsynet expects companies to include and clarify the price as part of the information in their fund lists. The price must be presented early, centrally and otherwise clearly on the pages for each individual fund, so that the price becomes part of the focus on the fund pages. Customers should not have to scroll down the page, search through dropdown menus, or in other ways go through a lot of other information to find the price. Customers should also not have to choose "buy", or in other ways start the purchase process of a specific fund to gain access to price information. Less important information about the fund should not be highlighted such that it undermines the price information. 1 See Commission Regulation (EU) No 583/2010 art. 10 (2) letter b), ref. the Securities Funds Regulation § 8-2. 2 Derived from the requirements of good business practice, ref. the Securities Funds Act § 2-15, the Securities Trading Act § 10-9, ref. also § 10-10 and the Financial Enterprises Act § 13-5 (4).

Disclosure of price information in marketing and sale of securities funds 4 | Finanstilsynet Percentage price information is important so that customers can easily compare prices on funds, but experience shows that it is difficult for many customers to understand the size and the actual significance of a percentage stated price. Finanstilsynet recommends that companies do not only state the price in percentage, but also as a nominal amount in kroner on the page for each individual fund. When providing information about the nominal price, companies can base themselves on a hypothetical scenario where the customer has invested a typical amount, for example 100,000 kroner. In the presentation of the price, it must be clear that the price is not a one-time cost, but an ongoing payment. This can be done by the company by stating "annual price", or similar. When companies inform about price in the marketing of funds, they should also explain to customers the significance the price has for expected return. Finanstilsynet expects companies to show the effect of the price so that the customer is well informed about the relationship between the return and the price for the fund. The company can do this by using graphical representations.

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