Guidelines for information and marketing etc by fund management companies

Adopted by the Swedish Investment Fund Association at the Board Meeting held on 6th December 2004 and updated on 4th June 2008 and 5th October 2009[1].

1. Information on funds

1.1 Full prospectus

1.2 Simplified prospectus

1.3 Annual Reports and Half-yearly Reports

1.4 Individual cost accounting

2. Marketing

2.1 General provisions relating to investment fund marketing

2.2 Historic return (past performance)

2.3 Mathematical examples and suppositions concerning future performance

2.4 Comparisons

2.5 Graphic presentation

2.6 Value judgements

2.7 Risk

2.8 Information on simplified prospectuses and full prospectuses

2.9 Fees

2.10  Marketing of funds with specific environmental, social or other similar investment orientations

3. Financial advisory services for investment funds.

3.1 Individual portfolio management financial advisory services

3.2 Provision of information and financial advice by distributors

Appendix 1 Standard for calculating the return of investment funds

Appendix 2 Competence requirements for persons acting as investment fund advisors

 

Guidelines for information and marketing etc
by fund management companies

These guidelines address issues relating to information on and marketing of investment funds, and to the provision of financial advice. The guidelines include, through points 2.1-2.8, an agreement with the Swedish Consumer Agency concerning the marketing of funds.

Rules governing information can also be found in some of the Association’s other guidelines. 

1. Information on funds    

Fund management companies shall, in conjunction with the sale of investment funds or direct contacts with customers outside the framework of a special licence to offer investment advice, clearly state that this does not constitute financial advice. The information shall otherwise comply with the requirements imposed with regard to marketing in general, see below. 

An up to date full prospectus shall be provided for every investment fund together with, pursuant to the Swedish Investment Funds Act, an up to date simplified prospectus. Annual and Half-yearly Reports shall be drawn up for the investment fund. Every unit holder shall also receive an annual individual cost accounting. 

If a standardised and non-individualised investment model is provided without direct contact with the customer, information shall be provided stating that this is a simplified model and that contact with a personal financial advisor is recommended for anyone requiring financial advice based on their individual requirements.

1.1 Full prospectus

Special requirements apply to the contents of full prospectuses under the provisions of the Swedish Investment Funds Act. The full prospectus shall also include the investment fund provisions. 

1.2 Simplified prospectus

Under the provisions of the Swedish Investment Funds Act, the investor shall always be offered the investment fund’s simplified prospectus prior to purchasing units in the fund. The purpose of the simplified prospectus is to supply the most critical information in accordance with a uniform structure. The Swedish Investment Funds Act and the Swedish Financial Supervisory Authority regulation, FFFS 2008:11, contain special requirements with regard to the content of the simplified prospectus. The simplified prospectus shall be updated at least once a year. The Swedish Investment Fund Association has produced the Simplified prospectus manual for investment funds to assist its member companies in the production of these simplified prospectuses.

1.3 Annual Reports and Half-yearly Reports

The Annual Report and the Half-yearly Report shall contain the information needed to enable an evaluation of the performance and position of every investment fund. 

The fund management company shall, for every investment fund under its management, draw up and submit 

1. an Annual Report, within four months of the end of the financial year, and 

2. a Half-yearly Report for the first six months of the year, within two months of the end of the second quarter of the financial year.

Communication of reports

The documents shall, upon request, be sent or handed out to the unit holders, free of charge, and shall be available from the fund management company premises and those of the depository. The fund management company shall, in conjunction with annual statements containing individual cost accounting (see point 1.1.4), ask the unit holders whether they wish to receive the Annual Report and the Half-yearly Report.

Key ratios

The Swedish Financial Supervisory Authority regulation, FFFS 2008:11, contains accounting rules for investment funds.

Chapt. 15, § 18 of the regulation states that investment funds shall include certain key ratios in their Directors Report. The Swedish Investment Fund Association’s guideline with regard to key ratios in respect of investment funds complements the regulation issued by the Swedish Financial Supervisory Authority and is intended, firstly, to ensure that the information meets a certain minimum standard, and secondly, to enable investors to make comparisons between investment funds. Key ratios shall be included for, amongst other figures, returns, costs, risk, turnover rate and turnover through associated companies. The same guideline also states that typical examples shall be included in the Annual Report with regard to the management cost for both one-off amounts and ongoing saving.

1.4 Individual cost accounting 

The fund management company shall, under the provisions of chapt. 4, §§ 22 and 23 of the Swedish Investment Funds Act, provide every unit holder with annual written details of the percentage of the total costs for the investment fund that refers to their unit holding. This should be done in accordance with the Swedish Investment Fund Association guidelines for the annual reporting of costs to unit holders. 

 

2. Marketing   

2.1 General provisions relating to investment fund marketing

All marketing shall be designed and formulated in accordance with good marketing practice (laws and other ordinances, legal precedents, good business practice, etc). In the marketing of funds to consumers, relevant and factual information shall be provided and the risks associated with the product on offer shall be explained. The information shall be clearly expressed.

By marketing is meant advertising and other commercial communications intended to promote sales, regardless of the advertising carrier (newspaper ads, direct mail, TV advertising, web pages, posters, etc) and other measures in accordance with the Swedish Marketing Practices Act. Most of the rules presented below do not apply to marketing intended to create a profile that contains no product information and where only the fund management company is mentioned. The rules express a minimum standard.

Fund legislation imposes special requirements regarding the content of simplified prospectuses and full prospectuses and of Annual Reports and Half-yearly Reports[2]. If the prospectus or Report contains strictly commercial information over and above these specific requirements, these guidelines on marketing of funds apply.

Please note that the Swedish Financial Supervisory Authority regulations regarding securities operations (FFFS 2007:16) include rules governing marketing material in conjunction with securities companies’ sale of financial instruments, such as investment fund units. Special rules apply, for example, to time periods in connection with reporting of returns. 

2.2 Historic return (past performance)

2.2.1 Calculation of return 

If details of the historic return are provided in the marketing, the return shall be calculated in accordance with generally accepted practice in the industry. This implies, amongst other things, the following.

In the case of information concerning a given fund’s return for the time period selected, the calculation shall be based on the fund’s net asset value, in order to achieve a comparable value for all funds. In the case of funds that pay dividends, the net asset value shall be complemented by amounts distributed from the fund.

The Swedish Investment Fund Association’s standard for calculating rate of turnover for investment funds should be used[3]. 

“Dividends” paid to charitable purposes shall be treated in the same way as other dividends when calculating the return. 

The return shall be calculated using up-to-date information, and the date of the latest listed price shall be given. Deductions shall be made in the calculation for all charges withdrawn from the fund. It shall be made clear whether front-end and withdrawal charges are additional and on which currency the return is based.

2.2.2 Time periods

The return earned during a particular successful period must not be highlighted in a way that gives a distorted overall impression of the performance of the fund. The account must provide a balanced picture of its actual performance.

When information on previously achieved return is provided in the marketing, information on the return for, at a minimum, the period that corresponds to the fund’s investment horizon must be included and presented prominently.

The recommended time period for short fixed income funds is one year; for bond funds, two years; for mixed funds, three years; and for equity funds, five years. The information shall relate to “rolling” periods or the latest calendar year. It shall be clearly indicated to what period the presentation relates. The closing date for the period covered shall be stated.

Newly started funds may provide information about the return earned since the day the fund was started, provided it is clearly stated that the fund has only recently been started. 

2.2.3 Inflation

When figures are provided showing the capital growth achieved so far over five years or more, it shall be made clear whether or not inflation has been taken into account.

2.3 Mathematical examples and suppositions concerning future performance

It shall be clearly stated, in conjunction with suppositions regarding future performance, that they are only to be considered as mathematical examples. Several alternatives should be provided in this context, using different preconditions. 

Mathematical examples to illustrate a fund’s future growth in value shall correspond, in their entirety, with good practice and must not be misleading in any respect. This means, amongst other things:

  • that mathematical examples shall be based on cautious and clearly stated assumptions,
  • and that it clearly must be stated that suppositions with regard to growth in value do not constitute a guarantee.

General information about the effect of inflation and tax implications for the consumer, if any, shall be provided when it is necessary to give a correct impression.

If mathematical examples are used to illustrate future growth in value, it shall be made quite clear that the example is only illustrative.

2.4 Comparisons 

If the return earned by a fund is compared with the return on another fund, a group of funds, an index or any other type of saving, the following shall be observed.

The account shall be presented in such a way that the comparison as a whole is in accordance with generally accepted practice and is not misleading in any respect. The various sections of the comparison shall be relevant and be based on facts that are capable of verification. This means, for example:

2.4.1 Comparisons with other funds

If the comparison is with other funds, it shall be clearly indicated how they have been selected. The selection of funds must be fair, which means, for example, that the funds shall in all essentials have the same investment policy. If a comparison is made with an average of other funds, it shall be stated whether or not the average is weighted.

2.4.2 Comparative index

If the comparison is with an index, it shall be readily apparent which index has been used. The index selected shall be relevant and relate to the investment orientation of the fund. Dividend-adjusted indices only shall be used, if such indices exist, in comparisons with market indices. If no dividend-adjusted index is available, another market index may be used. It must always be stated whether dividends are included. If the fund management company has combined separate indices, the composition shall be specified. The performance of the fund and the index shall be stated in the same currency and calculated in an equivalent way.

2.4.3. Comparisons with other types of saving

If comparisons are with another type of saving, the principles on which the comparison is based shall be clearly stated. The return on the fund and the return on the other type of saving shall be calculated in an equivalent way. The periods of the comparison shall be the same and shall be based on the rules for time periods indicated in point 2.2.2 above.

2.4.4 Other businesses or their product

References by a business in its advertising to another business or that business’ products are only permissible if the comparison does not discredit or is not disparaging of the other business’ operations, circumstances, products, brand names, trading name or other features.

2.5 Graphic presentation

Any presentation of past performance or mathematical examples with suppositions concerning future return illustrated in the form of curves or presented in some other graphic manner must give a correct picture and be relevant.

2.6 Value judgements

Placements of capital or returns may not be described in such terms as “safe”, “guaranteed” or similar value judgements if it cannot be verified that it is guaranteed that the investor’s capital will be repaid or that a given return will be earned. Words such as “secure” and similar value judgements may not be used for marketing purposes if they are not placed in a relevant context.

Unconditional words expressing value, such as “best”, “biggest” and “leading”, may not be used if the claim is not capable of verification.

Terms such as “Swedish champion”, “Nordic champion”, “Manager of the Year” and similar distinctions should not be used if they have not been awarded by a reliable assessor who is totally independent of the fund management company and are not based on representative material. It is incumbent on whoever is carrying out the marketing to verify that these claims are correct and responsible

2.7 Risk

In the marketing of funds, it shall always be made clear that such investments involve a risk.

The following information or a text with a similar content shall always be included in the marketing of funds. The text may not be placed in a position where it is not readily visible.

“Past performance is no guarantee of a particular return in the future. The money invested in a fund can increase or decrease in value, and there is no guarantee that all of the capital you invest will be repaid.” 

The above information need not be stated in connection with the marketing of funds where the invested capital and return are guaranteed. 

It is incumbent on fund management companies to make an assessment of the risk that an investment in the fund being marketed is likely to involve. If the fund management company considers that a fund shall be classified as a fund entailing a higher risk, e.g. because the fund’s value may vary substantially due to the composition of the fund and the management methods used by the fund management company[4], this shall be made quite clear in the marketing material.

2.8 Information on simplified prospectuses and full prospectuses

 If marketing material extends an offer to consumers to buy units in a fund, it shall, pursuant to the Swedish Investment Funds Act, be made clear in the offer that the simplified prospectus and full prospectus of the fund are available and details shall be provided of where they can be obtained. 

2.9 Fees

Fund management companies are reminded that they are obliged, pursuant to the Swedish

Investment Funds Act, to provide a clear account of all fees and charges in the fund’s simplified prospectus and full prospectus, which shall be made available to customers before any units are bought. 

2.10 Marketing of funds with specific environmental, social or other similar investment orientations

 

Background

In January 2004, the Ethical Fund Marketing Committee (ENF), at the request of the Consumer Ombudsman, issued an advisory statement that included a number of requirements that must be met before a fund could be marketed as “ethical”. The ENF has, in response to an enquiry by the Swedish Investment Fund Association, deemed it necessary to revise this statement, and in May 2009, issued a new statement that was further clarified in September 2009, and which replaces the former statement. To summarise, this statement stipulates the following[5], which should be observed by fund management companies.

ENF believes that the following criteria must be met before a fund may be marketed using the term “ethical” or other formulations that indicate or imply that the fund orientates its investments in line with special environmental, social or other similar considerations.

  • The fund management company shall have a clearly defined process for selecting its investments. This shall apply regardless of whether the fund management company applies positive or negative criteria in its selection process or the company’s policy is to attempt to influence those companies in which it invests in a desired direction.
  • The fund management company shall maintain a function for the ongoing monitoring and ensuring of compliance with the selection process.
  • If the fund management company claims that the fund’s investments are chosen on the basis of negative selection criteria, a maximum of five per cent of turnover in the company in which the investment is made, or in the corporate Group of which the company is a member, may entail operations that do not live up to the special requirements established by the fund management company.
  • The fund management company shall, in addition to the information regarding the fund’s investment orientation that must be provided in fund provisions, simplified prospectuses and full prospectuses, provide clear and easily accessible details of:

-          the company’s investment policy for the fund, including information on selection criteria and turnover limits, and

-          the company’s selection process for the fund and the way in which compliance with the process is monitored and ensured.

 

The information shall be provided on the company’s website, but must also always be available in written form,

  • The fund management company shall, in its Annual Reports and Half-yearly Reports, describe to what extent compliance with the investment policy has been achieved with regard to the orientation of investments based on specific considerations. The fund management company shall, to the extent that deviations from the policy have occurred, provide details of the measures taken as a result thereof.

 

3. Financial advisory services for investment funds 

Under the provisions of the Swedish Securities Market Act, the provision of financial advisory services is an activity for which a licence is required. A licence to provide financial advisory services may also be granted to fund management companies who have been licensed to offer individual portfolio management. Such activities are regulated by the Swedish Securities Operations Act (2007:528) and the Swedish Financial Supervisory Authority regulation FFFS 2007:16. 

3.1 Individual portfolio management financial advisory services

All financial advice supplied to consumers within the framework of a fund management company’s licence to provide financial advisory services shall:

  • be based on the needs and interests of the client 
  • take into account the level of the client’s knowledge
  • take into account the customer’s preferred risk level
  • include risk- and price-related information
  • be characterised by open disclosure with regard to whether the advisor receives a direct commission

and shall otherwise comply with the requirements imposed in FFFS 2007:16 etc.

Fund management companies shall ensure that their employees have the necessary professional skills and that they also possess such other competence as the business requires, and the competence required in accordance with the requirements specified in Appendix 2. The requirements specified in this Appendix constitute a complement to and concretisation with regard to fund-related issues of the requirements imposed by the Swedish Financial Supervisory Authority, and shall be adapted in line with the scope and complexity of the advice provided.

3.2 Provision of information and financial advice by distributors

If advice on the fund management company’s funds is provided via a distributor, the fund management company should maintain a policy for appointing distributors. A written agreement shall be drawn up between the fund management company and the distributor. The agreement shall state that the distributor is responsible for ensuring that any financial advice provided in connection with the sale of funds is provided in compliance with applicable legislation, directives and other relevant regulatory frameworks applicable to the operations conducted by the distributor. The distributor is responsible for ensuring that financial advisors possess the competence required and which is, amongst other things, specified in Appendix 1. The requirements specified in this Appendix constitute a complement to and concretisation with regard to fund-related issues of the requirements imposed by the Swedish Financial Supervisory Authority, and shall be adapted in line with the scope and complexity of the advice provided.

The fund management company shall provide distributors with the requisite product information and support with regard to the fund management company’s investment fund products.

 

 

Appendix 1 Standard for calculating the return of investment funds

The following formulae should be used when calculating the fund’s return.

For funds not paying dividends:

                                A = K/K1 - 1 

 

For funds paying dividends:

                               +                    A = K * (1 U/K2) -1

                                                                  K1

Explanations:            A = return during a selected period

                                K = price at the end of the period

                                K1 = price at the beginning of the period

                                K2 = price after deduction of dividend

                                U = dividend

If the calculation covers several years, all dividends during the period should be reinvested (added back in). 

A geometric method should be used when presenting a fund’s average annual percentage growth. Dividends paid during the period should be taken into account. The following formula is given as an example:

[(AV/K  1)(360/d)  -1] * 100  = % return per year

                                                                                                                

AV  = K * ? [1 + (U n / K n )]

AV                = Unit price at the end of the period (incl. reinvested dividends)

K1                 = Unit price at the beginning of the period

d                    = No. days in the period (always 30 per month)

K                   = Unit price at the end of the period

Un                 = Dividend number .n.

Kn                 = Price after deduction of dividend number .n.

If a fund does not pay a dividend, the accumulated dividend factor is ( [1 (Un/Kn)]) = 1

i.e. = the unit value = the unit price.

Return calculations for fixed income funds can be based both on a “simple” interest (period interest) and on an effective annual interest. The method of calculating the return must, therefore, be stated for these funds.

 

Appendix 2 Competence requirements for persons acting as investment fund advisors

The provision of investment advice is regulated by the Swedish Securities Operations Act (2007:528) and the Swedish Financial Supervisory Authority regulation FFFS 2007:16. In the latter regulation, competence requirements are specified in chapt. 16, §§2-8. The above-mentioned regulations are complemented below with examples of competence requirements that should be imposed in the context of the provision of fund-related advice.

 

General guidelines with regard to the competence requirements laid down in chapt. 16 of FFFS 2007:16

Fields and levels of expertise should be adapted in line with the company’s operations and the complexity of the solutions and products recommended to an individual consumer. The following summary of the areas of expertise that should be possessed by the person providing advice should not, therefore, be seen as exhaustive.

 

Specification of the competence requirement, as per chapt. 16, §3

Regulations

  • Fund-related legislation and relevant parts of
  • The Swedish Insurance Business Act (1982:713)
  • The Swedish Individual Pension Savings (IPS) Act (1993:931), and
  • The Swedish Income-based Retirement Pension (premium pension component) Act (1998:674)

The sound operations regulations laid down in applicable commercial law Acts

Money laundering, investor protection and insider trading rules

Contract Law, the Law of Torts and law relating to the rights of agents

Consumer law

Inheritance, gift and family law and national insurance law

Applicable tax law regulations

The role and rules of the Swedish Financial Supervisory Authority

  • including FFFS 2008:11 and 3

Applicable industry self-regulation

  • Relevant guidelines issued by the Swedish Investment Fund Association with regard to the provision of advice and sales

 

Specification of the competence requirement, as per chapt. 16, §4

Ethics

The role and responsibility of the advisor

  • The Swedish Financial Advice for Consumers Act (2003:862) including FFFS 2008:11
  • Fund-related legislation
  • Applicable industry self-regulation issued by the Swedish Investment Fund Association, e.g. rules governing trading in securities and foreign currencies for own and related persons’ account and ethical guidelines

Customer information on trade

Fair treatment of customers

Confidentiality rules

 

Specification of the competence requirement, as per chapt. 16, §5

Investments and types of saving

  • Basic knowledge of personal finance

Shares and share-related instruments

Interest instruments

Fund units

  • General knowledge of funds
  • Reasons for investing in funds
  • Fund types on the basis of investment orientation
  • Sources of information and key ratios

Derivative instruments

Mixed fund types and structured products

Pension insurance and other forms of pension savings

Capital insurance

 

Economics and Finance

Knowledge of the role and function of the financial market

  • The structure and role of the investment fund market

Basic investment strategies

Returns and risks

  • Risk disclosure
  • Investment fund valuation methods

Risk-adjusted returns

Basic portfolio theory

 

[1] The guidelines wording dated 5th October 2009 shall be applied at the earliest possible opportunity and no later than 1st April 2010. 

[2] The contents of these documents are specified in FFFS 2008:11 and apply to all funds. The Swedish Investment Fund Association has, additionally, issued Guidelines for reporting of key ratios in relation to investment funds in Annual Reports and Half-yearly Reports.

[3] See Appendix 1.

[4] See this definition in the Swedish Investment Funds Act (2004:46), chapt. 4, §16, subsection 2, point 2.

[5] The entire statement is available from the Swedish Investment Fund Association website at www.fondbolagen.se.

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