Frustration rises on OSC awards ruling

By Melissa Shin | August 18, 2016 | Last updated on September 19, 2023
2 min read

Tux rental shops can point to the OSC if revenues are down this winter.

Morningstar will be eliminating the bulk of its mutual fund awards, which were typically handed out a gala event each November. Winning funds would often advertise their awards to prospective investors, but the OSC is now ruling that out.

In a July 2015 notice, the regulator said, “The sales communication requirements for mutual funds in Part 15 of NI 81-102 do not permit the use of a performance rating or ranking of a mutual fund that is based partially on a subjective component.”

Morningstar will still give out five awards in January 2017 to managers: 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 and Morningstar Multi-Asset Fund Manager of the Year.

While the OSC does not comment on correspondence with stakeholders, John Mountain, OSC’s director of Investment Funds and Structured Products, says, “We continue to encourage investment fund managers and their counsel to reach out to OSC staff regarding sales communications to discuss any questions on this issue.”

The regulator’s position is frustrating, says David O’Leary, managing director of Eden Valley Partners and former director of manager research at Morningstar Canada. He’s concerned that the OSC is only targeting awards that include subjective components.

Read: Op-ed: OSC ruling on award ads misguided

Any quantitative metric is “by nature, limited — it can’t make subjective judgment calls. […] An annual award that is just quantitative probably does more damage than it does good,” he says, in part because of its short-term focus. “It’s not helpful to the investor to just say which fund did best [quantitatively] over the last year. That’s just looking in the rear-view mirror. […] It’s [often] the riskiest funds that do best in any given year.”

O’Leary argues that if the OSC won’t allow subjective criteria, the regulator should ban award program advertising altogether.

He suggests another option: for the OSC to review individual award programs and provide exemptive relief to those that pass muster. O’Leary points out that Morningstar itself received exemptive relief to have its star ratings included in advertising. “I think [reviews are] worthy of their time,” he says.

Mountain says Morningstar’s ratings can be advertised “provided that all of the requirements set out in subsection 15.3(4) of NI 81-102 have been met.”

Read: SEC lifts ban on hedge fund advertising

Ken Kivenko, who sits on the OSC’s Investor Advisory Panel, says, “If [the industry] wants to issue awards, [they] can be for stewardship, governance, productivity (fee reduction), innovation and investor education.” He also points out that award marketing can be distracting. “The CSA requires a warning [on advertisements]: ‘Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.’ When marketing materials cite these awards, they dull investor senses to the CSA warning.”

This article has been updated.

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Melissa Shin

Melissa is the editorial director of and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at You may also call or text 416-847-8038 to provide a confidential tip.