General Regulations and Guidelines for Sales Literature

4.3 General Regulations and Guidelines for Sales Literature

Sales literature is the front line of communication between investment firms and prospective or existing clients. It’s the glossy brochure on a receptionist’s desk, the digital pitch deck in a client’s inbox, and the marketing emails you send out to highlight a new product. In other words, this category includes almost any promotional material that advertises a service or product. But behind each piece of sales literature lies a strict regulatory framework designed to protect investors and maintain the integrity of our financial markets.

Maybe you’ve encountered a scenario where you picked up a shiny brochure guys in your office prepared, and you had that “Wait a second, is this actually okay to say?” moment. Well, if you’ve ever hesitated about a claim or piece of data in marketing content, it probably revolved around ensuring it meets regulatory standards and is free of exaggerations or misleading statistics. That’s precisely the spirit of CIRO Rule 3600, which sets out the rules for how to create, review, approve, and distribute sales literature responsibly.

Below, you’ll find a thorough discussion of the main compliance considerations, best practices, and typical pitfalls related to sales literature. If you take nothing else from this chapter, remember: clarity, honesty, and fairness are your watchwords.

Clarity on the Regulatory Framework

Canada’s investment industry operates under the oversight of the Canadian Investment Regulatory Organization (CIRO). Since January 1, 2023, the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC) have amalgamated under a single entity named CIRO. While references to MFDA or IIROC might turn up in older documents, they’ve effectively been retired as separate organizations.

For sales literature, CIRO has a central rule—CIRO Rule 3600—that outlines how representatives (RRs) and their firms must handle any marketing or promotional materials. This includes brochures, websites, media ads, newsletters, emails, social media, presentations, and even advanced analytics tools used to demonstrate hypothetical portfolio returns. CIRO’s stance is that such literature must present accurate, clear, and balanced information. And because there’s often a fine line between “enthusiastic marketing” and “misleading claims,” it’s crucial to understand the boundaries.

Accuracy, Fairness, and Clarity

Three little words—accuracy, fairness, and clarity—might sound simple. But let’s unravel them a bit:

• Accuracy: Every data point, statistic, or claim in your marketing materials must be verifiable. You can’t just throw in a performance chart that’s been adjusted for best-case scenarios without clearly stating assumptions.
• Fairness: This includes ensuring that you present both the upsides and potential downsides of an investment opportunity. If you highlight the “best possible returns,” you must also include prominent discussion of the associated risks.
• Clarity: Avoid language that confuses potential investors, or that could be interpreted in multiple ways. People encountering sales literature don’t always have advanced finance degrees. Your job is to make sure they truly understand what’s on offer.

One time, a friend of mine produced a deeply technical piece on a new structured product. It was full of jargon and disclaimers tucked away in the footnotes. Compliance took one look and just said, “Nope, readers won’t get this.” That friend spent the next two days simplifying the language: removing legalese, clarifying disclaimers, and presenting a balanced view of potential outcomes.

Avoiding Exaggerated Claims and Guarantees

Nothing undermines the integrity of the securities industry like exaggerations or blanket guarantees. Investors understandably want to see success stories, but it becomes a problem when materials imply unrealistic returns, downplay real risks, or suggest the improbable is guaranteed.

Examples of prohibited statements often include phrases like “risk-free investment,” “guaranteed returns of X%,” or “get-rich-quick.” Even phrases such as “safe haven” can be problematic if they lead clients to disregard the risk that still exists.

As you might imagine, regulatory bodies are quick to clamp down on marketing hype that suggests assured profits in the capital markets. Always ensure that any forward-looking statements are labeled as such and that you have disclaimers clearly stating they are not guarantees.

Identifying the Firm

All sales literature should identify the firm responsible for its content. This is not just a courtesy; it’s a regulatory requirement. If the letterhead or the email signature doesn’t clearly display the name of the sponsoring firm, clients can become uncertain about accountability. Within the context of CIRO Rule 3600, having a distinct attribution to your firm helps reinforce that there’s a regulated entity standing behind the claims.

In simpler terms, if a piece of sales literature is missing a firm’s name, it shouldn’t leave your hands (or your inbox). Compliance departments will typically have strict style guidelines about how to present firm information, phone numbers, disclaimers, and even logos.

Disclosure of Conflicts of Interest and Compensation Arrangements

Conflicts of interest can arise in surprising ways. Maybe your firm has an affiliation to the issuer of the product, or your compensation is partially dependent on selling a particular mutual fund. Sometimes it’s as straightforward as, “If I sell more shares of this IPO, I get a bigger bonus.” Or it’s a subtle scenario, like your spouse works for a company whose stock you’re promoting.

Clients deserve to know about these conflicts, because they might affect your objectivity. CIRO’s rules demand that if there’s a conflict of interest in the recommendation or opinion, it must be appropriately disclosed. Often, disclaimers or footnotes in a brochure can suffice—but make sure they’re not hidden in tiny font or buried in fine print that no one reads. The goal is open, honest communication about how your interests could differ from your client’s.

Approval by Compliance

If you’ve ever endured that waiting period where your fantastic new flyer sits in a compliance queue, you know the mandatory compliance review can slow things down. But it’s in place for good reason. A thorough compliance check helps you avoid regulatory violations that could damage the firm’s reputation or lead to hefty fines.

Your compliance department typically checks for these red flags:
• Misleading statements (e.g., “guaranteed gold mine!”)
• Improper disclaimers or missing disclosures
• Overly complex technical jargon
• Inadequate identification of the firm
• Missing conflict of interest disclosures
• Blatant or subtle factual inaccuracies

In many firms, the compliance approval process is well-defined. Some have a designated marketing compliance platform where you upload your draft material, identify references or sources, and wait for an annotated approval or required revisions. The final, approved version should be the only one that gets distributed externally.

Below is a simple visual representation of that review process:

    flowchart LR
	    A["Draft Sales Literature"] --> B["Compliance Review"]
	    B["Compliance Review"] --> C["Revision & Approval"]
	    C["Revision & Approval"] --> D["Distribution to Clients"]
	    D["Distribution to Clients"] --> E["Retention of Approved Material"]

• Draft Sales Literature: The RR or marketing team creates the initial content.
• Compliance Review: Firm compliance officers check for alignment with CIRO Rule 3600.
• Revision & Approval: Adjustments are made based on feedback.
• Distribution to Clients: The approved final version goes out.
• Retention of Approved Material: Copies are kept on hand for regulatory audits or future reference.

Use of Disclaimers and Disclosures

It’s impossible to talk about sales literature without mentioning disclaimers. Disclaimers serve as guardrails, ensuring clients understand that certain statements—like historical performance or hypothetical performance—do not guarantee future results. You’ll see disclaimers stating: “Past performance is not indicative of future returns.” Or disclaimers that mention, “This is for informational purposes only and does not constitute an offer to buy or sell.”

In fact, disclaimers are often where compliance will pay especially close attention. You might wonder why disclaimers appear in large bold font or repeated in multiple places. The reason: if disclaimers are too inconspicuous, regulators and clients may argue they weren’t properly informed.

Similarly, the use of disclaimers extends to the hypothetical performance that some marketing teams love to show. For instance, maybe you want to illustrate how a $10,000 investment in a balanced portfolio might grow under certain market conditions. That’s fine—but your scenario must not appear as though it is certain or guaranteed. The underlying assumptions (like average annual returns, volatility assumptions, or reinvestment rates) must be clearly stated.

Retention of Sales Literature

Under CIRO requirements, firms must maintain a record of all approved sales literature for at least seven years (in many cases, the actual period might be longer in practice). Retaining these documents allows regulators to conduct a thorough audit trail if there’s any question about what was communicated to investors. It can also help your firm minimize liability, as they can demonstrate compliance with rules at the time of publication.

In practical terms, you and your firm might store digital copies on your internal compliance portal, or keep physical copies in a designated file. If you later make updates to existing materials, you’ll generally have to push a new version through the same compliance cycle and also keep the older one archived.

Spotlight on Hypothetical Performance

Hypothetical performance data can really perk up potential investors’ ears. But it can also be a breeding ground for unrealistic expectations. By definition, “hypothetical performance” refers to simulation of returns based on assumptions—like historical backtesting or purely theoretical modeling.

Because no one can predict the future, hypothetical models must be clearly labeled as hypothetical, with disclaimers about the assumptions used (e.g., no management fees, perfect market conditions, constant rebalancing). Additionally, any marketing that references hypothetical performance must be balanced. If your chart only shows the best-case scenario, you risk misleading your audience about the darker side of possible losses.

In real practice, if you’re presenting “gains of 12% in a moderate portfolio,” be sure to mention the conditions that would allow for such gains. And perhaps show a scenario that yields only 2% or a negative number, so potential clients realize there’s risk.

Common Pitfalls

Hiding disclaimers in fine print
• Regulators, compliance staff, and savvy investors consider this a huge red flag.

Overly optimistic predictions
• Watch out for statements that might come across as borderline hyperbole (“strongly believe you’ll see 15% returns each year”).

Leaving out fees or commissions
• You can’t show potential returns without discussing the deduction of fees and commissions. Doing so risks painting a misleading picture.

Ignoring the compliance chain-of-command
• Sending out materials before compliance review is a sure way to get in hot water.

Falling short on conflicts of interest disclosure
• If you earn a bonus for selling a particular product, or if the firm is related to the product issuer, that must be stated.

Practical Example: Revising a Brochure

Let’s say you’re designing a brochure describing a new energy sector mutual fund. Your initial draft includes statements such as:

• “Historically returns have been 8% every single year, making this a safe and reliable choice!”
• “By investing in this fund, you’ll earn up to 12% once the market rebounds.”
• “Guaranteed monthly cash flow from the energy sector.”

The compliance department highlights the following issues:

• “Historically returns have been 8% every single year” – This can be misleading if not backed by audited data or if further disclaimers about fluctuations are missing.
• “Making this a safe and reliable choice!” – That goes beyond what’s permissible because it might minimize the risk.
• “You’ll earn up to 12% once the market rebounds” – This is forward-looking and must be accompanied by disclaimers that future results may differ.
• “Guaranteed monthly cash flow” – The term “guaranteed” is a big no-no unless the product is actually guaranteed by an insurance wrapper or government program.

After discussion with compliance, the revised brochure might say:

• “Historical returns have averaged 8% annually since inception, but past performance is not indicative of future results. Returns have varied significantly from year to year.”
• “The fund may be suitable for investors with moderate to high risk tolerance, given volatility in the energy sector.”
• “Possible annual returns could range from negative values to double digits, depending on market conditions.”
• “The fund aims to pay a monthly distribution, but these payments are not guaranteed and can fluctuate.”

Importance of a Balanced Presentation

The mention of potential losses or negative returns in promotional material can be uncomfortable—nobody likes to dwell on worst-case scenarios in marketing. But leaving them out can quickly lead to compliance issues. Regulators expect to see a balanced disclosure of risks and rewards.

In simpler terms, don’t hide the possibility of losing money. If your literature only glorifies how much an investor could win, it can lead to unrealistic expectations. And that means potential regulatory scrutiny for “unbalanced” or “misleading” representation of the product’s risk profile.

Real-World Anecdote: Overstating Performance

I recall a scenario where a colleague put together a spectacular chart projecting dizzying highs for a new high-yield bond product. Unfortunately, he forgot to factor in that many high-yield bonds come with substantial credit and default risk. The brochure ended up reading like a promise of stable, sky-high income. When compliance flagged it, he had to add disclaimers explaining these were speculative returns and that there was a real risk of significant capital loss. As you might guess, the final version looked quite different from the original. Yet it was important for fairness and clarity.

Relationship to Other Rules

Sales literature rules tie closely into:

• Suitability (see Chapter 6): Even the best marketing piece is no good if the underlying product isn’t suitable for a client.
• Communication with the Public (Chapter 4.2): Must align with broader public communication guidelines.
• Prohibited Activities (Chapter 7.4): Some marketing strategies can border on manipulation or misrepresentation if not carefully vetted.
• Privacy (Chapter 4.5): Be cautious when referencing clients or using testimonials—personal information must remain confidential.

Essentially, sales literature is never an isolated domain—it’s interconnected with a firm’s entire regulatory approach.

Encouraging Critical Thinking

If you’re reading through a piece of marketing material, ask yourself:

1. If I didn’t know anything about this product, would I have a fair, accurate, and balanced understanding?
2. Are there disclaimers that clearly inform me of the potential risk or conflicts of interest?
3. Does this piece potentially mislead someone by overemphasizing gains and ignoring real losses?

Encourage clients to ask as many questions as they need to understand a product’s risks, fees, and returns. In a sense, it helps build trust when communications are transparent.

Best Practices for Sales Literature

• Maintain a Running Checklist: Include disclaimers, risk factors, and conflict disclosures in a standardized template.
• Use Plain Language: Speak to the broadest audience, ensuring that borderline jargon is either explained or avoided.
• Provide Balanced Scenarios: Always include both positive and negative possibilities.
• Keep Records: Track version history of your marketing materials.
• Frequent Internal Audits: Even after approval, do periodic spot checks to ensure older materials remain compliant with new rules—regulations can change over time.
• Ongoing Training: Encourage yourself and your team to stay updated on compliance seminars or courses about marketing best practices.

Case Study: Handling Affiliate Products

Imagine your firm has an affiliate relationship with an asset management company that offers a new real estate fund. You’re drafting a promotional flyer:

• Because of the affiliate relationship, you must include a conflict-of-interest disclaimer, clearly indicating that the fund’s manager and your firm share a corporate umbrella.
• If your compensation is partly tied to successfully selling that real estate fund, you must mention that in the disclosures too.
• Don’t inadvertently downplay the potential volatility or risk in real estate markets.
• Place disclaimers about how real estate values and rental incomes can fluctuate under macroeconomic conditions.

In practice, your final flyer should read something like:
“This real estate fund is managed by [Affiliate Name], which is an affiliate of [Your Firm Name]. [Your Firm Name] and its representatives may receive compensation related to the sale of these funds. Historical returns are not indicative of future results, and real estate investments carry risk, including the possibility of loss due to market fluctuations.”

Looking Ahead

As new communication channels emerge—think social media, interactive apps, or AI-driven investment dashboards—sales literature regulations will continue to evolve. The principles remain the same though: be honest, be fair, and be transparent. If you’re ever unsure whether a statement crosses the line, check with your compliance department.

Staying on top of the rules set out in CIRO Rule 3600 not only protects you and your firm from regulatory trouble, but it also helps foster trust and long-term relationships with your clients. When investors trust your honesty and clarity, they’re more likely to stay with you for the entire journey—not just the flashy marketing campaign.

Resources for Further Exploration

• CIRO Rule 3600 – Sales Literature
• “Advertising and Sales Literature Compliance Handbook,” Canadian Securities Institute
• For more information on conflicts of interest and ethical considerations, refer back to Chapter 2: Ethical Decision Making
• For broader public communication guidelines, reference Chapter 4.2: Communication with the Public

If you stay tuned to these guidelines, you’ll find that creating compliant, engaging sales literature is entirely possible—without skimping on the accurate details your clients need to make well-informed investment decisions.

Test Your Knowledge: Canadian Sales Literature Compliance Essentials