The Canadian Securities Administrators (CSA) has published guidance for the preparation, review and use of marketing materials by portfolio managers.

Staff Notice 31-325 is based on a compliance review of the marketing practices employed by 50 portfolio managers. Common deficiencies included exaggerated or unsubstantiated claims, improper use of benchmarks, and the preparation and use of hypothetical performance data.

Roughly 20% of the managers reviewed had deficiencies in their use of hypothetical performance data. Often the data was combined or linked with actual client performance data, which could give the appearance of a longer track record, or suggest that the information is based entirely on actual client performance.

“To offer better protection to the investor community, securities regulators need to understand the ways in which portfolio managers are marketing their services and experience, and how these marketing efforts influence investors,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission.

“The findings of the review will also be useful to industry, as they generated numerous recommendations that will assist portfolio managers in meeting their legal obligation to deal fairly, honestly and in good faith with their clients.”

The CSA also provided guidance on the use of social media platforms for marketing purposes. While sites like Facebook, Twitter and LinkedIn are not widely used by portfolio managers, CSA staff expects this to change.

The staff notice points out that under NI 31-103 registrants must maintain records of their business activities, financial affairs and client transactions, which may prove difficult in the social media environment.

“There is increased risk that registrants may not be retaining adequate records of their business activities and client communications when using social media web sites,” the staff notice reads. “This is the result of interactive social media web sites that include the posting of both real time and static content. Registrants need to consider designing systems that will allow for compliant record retention as well as retrieval capability.”

The CSA offered the following guidance on social media usage:

– establishing policies and procedures for the review, supervision, retention and retrieval of materials on social media web sites

– designating an appropriate individual to be responsible for the supervision or approval of communications

– reviewing the adequacy of systems and programs to ensure compliant record retention and retrieval capability

To read the entire notice, click here.