CSA 90/3 - Mutual Fund Sales Incentives - Suspension of Foreign Trips [CSA Notice - Rescinded]

Published Date:	1990-12-20

The Canadian Securities Administrators (the "Administrators") have for some time been concerned that foreign trips offered by various persons including mutual fund managers in connection with the sale of mutual fund securities may create unacceptable conflicts of interest or the public perception of such conflicts. Considerable public attention has been focused on foreign trips and the adverse publicity which they have generated has tended to undermine investors' confidence in mutual funds. The Administrators have concluded that the practice of offering such trips should be suspended while the issue is examined further. Representatives of the Ontario Securities Commission have met with various participants in the mutual fund industry to advise them of the Administrators' concerns and to request that participants in the industry voluntarily address this situation.

The Administrators commend those participants in the industry who have responded to this request. The Administrators have received from various industry participants, who collectively manage well in excess of the majority of assets under administration, individual undertakings to the effect that, with respect to sales recorded during 1991, neither they nor their respective associates or affiliates will directly or indirectly in connection with the sale of securities of a mutual fund by any person or company organize or pay for any educational seminar, sales conference or other trip unless the seminar, conference or trip is held in Canada and appropriate disclosure is made in the prospectus or simplified prospectus of the mutual fund.

These individual, voluntary undertakings are intended to be an interim measure. The Administrators understand that industry participants intend to examine various issues related to the formation of a self-regulatory organization for the mutual fund industry. As part of this process they intend to study all forms of sales compensation provided to persons who sell securities of mutual funds, as well as the method of disclosing compensation to purchasers, and to report to the Administrators on the results of their study.

The Administrators have communicated to those industry participants with whom they have been discussing the current situation their hoe that such a study could be completed by the summer of 1991 so that any necessary action in response to it can be taken by the end of 1991.

In light of the undertakings already received from industry participants, the Administrators expect that all participants in the mutual fund industry will refrain from directly or indirectly organizing or paying for any educational seminar, sales conference or trip with respect to sales recorded during 1991, unless the seminar, conference or trip is held in Canada and appropriate disclosure of it is made in the prospectus or simplified prospectus of the mutual fund.