Trend of decreased transparency a lose-lose

By Dan Hallett, CFA, CFP on February 16th, 2011

Valentine’s Day is a day to celebrate love.  But on February 14, 2011, I wasn’t feeling the love from the mutual fund industry.  On that day, the Investment Funds Institute of Canada announced that it would cease reporting company-specific sales data every month to the public.  It will, however, continue making this information available to members and statistics subscribers.  Some fund companies will also continue to release their own data.  Recent examples include RBC Asset Management and Scotia Asset Management which recently released January sales data via press releases.

This event, in itself, isn’t such a big deal.  But when viewed in the context of the industry’s decreasing transparency, it’s a bit troubling.  Five years ago, mutual funds in Canada stopped providing Statements of Portfolio Transactions (SPT).  When National Instrument 81-106 (Continuous Disclosure) came into force, the SPT disappeared.  In this 2007 Investment Executive article I explain why I think this resulted in worse transparency overall.

Ironically, mutual fund transparency has generally deteriorated over the past several years while the raw volume of information has significantly increased.  More information does not equal improved transparency.  IFIC isn’t to blame for this development; some of this is due to regulatory reform.  But one fund company quoted in this article offers a reason that just doesn’t hold water.

Still, [CI Financial’s] Mr. MacPhail argued there is no need to hand out monthly numbers when firms in the United States and elsewhere don’t do so. “Canada was unique in evolving into this monthly reporting of sales,” he said. “It was never intended to be that way when IFIC started collecting data.

“Somehow, it migrated from confidential internal data amongst IFIC members to public information. No other industry in the world would report this type of information, especially on a monthly basis.”

When I read this, I immediately remembered the stories I read on car and truck sales every month.  But I’ve never seen the data first-hand so I turned to the internet in search of such data.  In 60 seconds flat, I stumbled on this statistics page from Wards Automotive.  Clicking on the data link takes you to a spreadsheet showing monthly sales by vehicle type and by manufacturer – a layout that is similar to IFIC sales data.  This makes me wonder how many other industries around the world offer monthly sales or performance data.  If I could find one so quickly, surely there must be others.

The industry can keep sales data under its hat but net sales can be inferred, quite accurately, from monthly asset and return data – that is unless asset data becomes more sparse.  Investor have more information available on funds but transparency has clearly deteriorated.  This broader trend of decreased transparency isn’t good for investors, analysts or the industry so I hope it’s not a trend that will continue.