Decision follows a reminder from the OSC last year that firms are not allowed to promote mutual funds using a performance rating or ranking based partly on a subjective component
By Tessie Sanci |
Toronto-based Morningstar Canada has confirmed that it’s suspending the distribution of most of its annual awards as well as the gala in which those awards are presented for 2016. The ratings and research firm made the decision following a reminder from the Ontario Securities Commission (OSC) in a newsletter the regulator published in July 2015 in which it emphasized that National Instrument 81-102 does not allow the promotion of mutual funds using a performance rating or ranking that is based partially on a subjective component.
Many of the awards that were typically distributed at Morningstar Canada’s annual gala ranked the success of funds based on subjective criteria that included the quality of the fund’s management. “The OSC has indicated that promoting funds based on awards is something it doesn’t want fund companies to do, so, naturally [those companies] are reluctant to do so,” says Scott Mackenzie, president and CEO of Morningstar Canada. The OSC’s emphasis of this rule is a significant part of why Morningstar Canada is not going ahead with its traditional gala in 2016, Mackenzie says, adding that “the fund companies obviously aren’t terribly interested in the awards if they can’t actually speak about them.” Morningstar Canada’s decision has led to the suspension of any juried awards related to the quality of specific products as well as submissions-based awards, which include honours for investor education, marketing and technology. The organization will continue to bestow five awards that are unrelated to specific products: > Morningstar Analysts’ Choice Steward of the Year > Morningstar Domestic Equity Fund Manager of the Year > Morningstar Fixed-Income Fund Manager of the Year > Morningstar Foreign Equity Fund Manager of the Year > Morningstar Multi-Asset Fund Manager of the Year
Although the decision to cancel the event or distribute certain awards in 2016 is definite, they may return if the OSC were to change its mind on the issue, Mackenzie says.
However, any move to bring back the event would have to be driven by a desire on the part of the fund industry, says Mackenzie, who feels that Morningstar Canada would be in a conflict of interest if it were to be involved in promoting the reinstatement of its full awards program.
The recipients of the five awards remaining in 2016 will be informed of their win in early 2017. A press release announcing the winners will be made available at that time and Morningstar Canada is planning on holding a smaller event to celebrate those individuals, although few details are available at this time.
The cancellation of many of this year’s awards is a loss to investors as there should be multiple ways to look at the success of a fund outside of a quantitative performance record, Mackenzie notes.
Specifically, the quality of the portfolio managers and the fund company behind the products as determined by an independent and objective committee is important, he says.