Rules for Communications with Clients

17.7 Rules for Communications with Clients

Communication is at the heart of any successful relationship between mutual fund sales representatives (or any other registered investment professionals) and their clients. After all, if you’re like me, you probably appreciate being given clear, concise information—especially when you’re making important financial decisions. When we talk to clients about financial products, services, or performance, we need to ensure our messages meet regulatory standards for truth, transparency, and fairness. Below, we’ll walk through what it means to communicate in a way that’s aligned with current regulations (and good ethics!), focusing specifically on the ground rules set by the Canadian Investment Regulatory Organization (CIRO) and other Canadian authorities.

Before we jump in, let’s remember that communication takes many forms: it might be a face-to-face chat, an email newsletter, a tweet, a glossy brochure, or a full-blown marketing campaign. Regardless of the channel, the trick is to give balanced and accurate information to clients so that their investment decisions reflect their best interests, not just the hype of the marketplace.

Why Proper Communication Matters

I remember when I first started chatting with clients about mutual funds and noticed how their eyes tended to glaze over whenever I used complicated terms like “yield curves” or “basis points.” Over time, I learned that good communication means meeting clients where they are in terms of knowledge and comfort—simplifying language, being transparent about fees, and making sure they truly understand the ups and downs of investment products instead of just nodding politely.

Whether you’re brand new to the field or a seasoned pro, remember that you’re dealing with people’s personal savings and future financial security. High-quality communication practices build trust, reduce confusion, and protect both clients and dealers from misunderstandings and regulatory trouble.

Fair, Balanced, and Not Misleading

One of the most fundamental rules about communications in the financial industry is that all client messages must be fair, balanced, and not misleading. Essentially, don’t hide the bad stuff, don’t oversell the good stuff, and don’t forget to highlight essential risks. If a mutual fund has historically outperformed the market, that’s great—but we also must emphasize that past performance is never a guarantee of future results.

Not surprisingly, regulators can come down hard on communications that appear exaggerated. For instance, claims like “Guaranteed to make 10% returns!” could create false or unrealistic expectations. Words like “guarantee,” “risk-free,” and “no fail” often raise a red flag with compliance officers.

Clarity and Disclosure

Clear disclosure is critical for every piece of client communication. Clients have the right to know about: • Potential investment risks and volatility
• Associated fees, commissions, or trailing commissions
• Possible conflicts of interest, such as referral fees from partners
• The specific relationship between a representative and a product manufacturer
• Whether the marketing piece is purely educational or also promotional

Let’s say you’re excited about a new balanced fund that your dealer has just put on the shelf. You want to share a short Tweet about it—“Check out this new balanced fund with awesome historical returns!” Before hitting send, pause and consider how you can incorporate disclaimers or links to the fund’s details or disclaimers. That might feel tedious, but it’s part of ensuring that clients understand the bigger picture (like fees, risk ratings, or the difference between hypothetical and actual past performance).

Identification of Promotional vs. Educational Material

If you’ve ever found yourself wondering, “Am I reading an article or an advertisement here?”—you’re not alone! Clients often have the same question. One of the guidelines emphasized by CIRO is to clearly identify when a piece of communication is purely educational versus promotional.

• Educational communications: These outline objectives, strategies, or general market conditions without promoting a specific product.
• Promotional communications (advertisements): These aim to sell or recommend a product or service.

It’s not illegal or unethical to advertise, of course—but you need to label promotional content as such and ensure it meets the fair and balanced standard. A webinar titled “How to Understand Mutual Funds” should focus on delivering general knowledge. On the other hand, a webinar called “Why ABC Balanced Fund Could Be Right for You” is likely promotional and should be labeled accordingly.

Plain Language

It’s amazing what some advisers can do after studying economics and finance for years, but thick jargon can impede comprehension. Using everyday speech (a principle known as “plain language”) helps clients grasp the core ideas quickly. You can refer to the Plain Language Movement and Resources for some detailed tips.

In my early career days, I definitely slipped into the trap of saying, “Well, the fund’s Sharpe ratio measures its risk-adjusted returns relative to standard deviation.” Then I’d watch a few eyebrows furrow. Now, I might say, “This measure shows how much risk the fund took for every unit of return. A higher number usually means you’re getting more return for the risks you’re taking.” That’s easier for most people to follow.

Recordkeeping

Even though it sounds mundane, recordkeeping is a huge piece of the communications puzzle. When we talk about recordkeeping, we’re referring to storing and tracking items like:

• Brochures and flyers distributed to prospects or clients
• Emails, newsletters, or letters to clients concerning investments
• Social media posts, including tweets, LinkedIn posts, or blog articles
• Approved scripts used in webinars or seminars
• The timeline and approvals for each communication

If a regulator or an internal compliance officer says, “We need to see how you promoted that new bond fund six months ago,” you want to be able to produce the original promotional materials and demonstrate you had them properly approved at the time.

Many dealers maintain a central portal or library where compliance-approved materials get archived. Using these stored materials ensures you’re always using the right version for your communications. If you modify the materials, be sure to run them by compliance again.

Social Media Policies

In recent years, social media has become a major frontier for client communication. I remember the first time I tried to announce a new financial product on my personal Facebook profile—my compliance department was not pleased. Indeed, your firm’s social media policy is no joke: it lays out how employees and representatives can (and can’t) talk about financial matters online.

Key points to keep in mind:
• Make sure every post is approved if required by your firm’s guidelines.
• Avoid providing specific financial advice via personal social media accounts.
• Keep a polite, professional tone, and never misrepresent your credentials.
• Refrain from revealing confidential client info or inside business details.

Overstepping social media boundaries can lead to disciplinary action from your firm and from CIRO. It’s a good idea to review your dealer’s official social media policy and abide by it, even when you’re off work.

Practical Examples and Case Studies

Let’s think through a hypothetical scenario:

• You discover a new growth-oriented mutual fund that’s done extremely well over the past couple of years. You want to inform your clients, so you draft an email: “This fund has soared by 25% each year for two years—get in while you still can!”
• If we look at the guidelines: is this fair, balanced, and not misleading? No, it’s not. You mentioned the good performance, but you didn’t explain that two years might be too short for a full performance picture, nor did you mention that the fund’s risk might be above average. You also used an urgent tone of “get in while you still can,” which can imply a time-limited or guaranteed opportunity.
• A better approach might be: “This fund has seen strong growth in the past two years, but its returns can fluctuate. Let’s talk about whether it fits your investment goals and risk tolerance.” This acknowledges the potential upside along with the possibility of downturns.

Or, consider how a new representative posts on social media: “Check out ABC Income Fund; you’ll never worry about losing money again!” is obviously a big no-no. Instead, an acceptable approach might be: “ABC Income Fund is designed to reduce volatility, but remember no investment is risk-free. Always read the fund facts and speak with me about your personal situation if you have questions.”

Diagrams and Visual Overviews

Below is a simple flowchart highlighting a typical communication approval process inside a mutual fund dealer. Visualizing these steps might help you keep track of the necessary compliance path before distributing any new materials to clients.

    flowchart LR
	    A["Representative Drafts <br/>Communication Materials"] --> B["Compliance Review <br/>by the Dealer"]
	    B --> C["Revisions / <br/>Approvals"]
	    C --> D["Client Distribution"]
	    D --> E["Feedback and Ongoing <br/>Communication"]

In this diagram:
• The process begins with the representative drafting a communication (A).
• The communication is sent for compliance review (B).
• The dealer’s compliance or supervisory team may make revisions (C) or finalize approvals.
• The material is then distributed to clients (D).
• Finally, you capture client feedback and continue communication as changes occur (E).

By following these steps, you reduce the risk of inadvertently violating a CIRO rule or delivering incomplete information.

Best Practices and Common Pitfalls

Best Practices:
• Use disclaimers: Provide disclaimers or references to official documents (like a Fund Facts sheet) whenever you mention performance or features.
• Display consistency in marketing channels: If you highlight a certain fact in one ad, maintain the same consistency in other ads or platforms to avoid confusion.
• Regular compliance training: Keep up with firm-mandated seminars or compliance updates.
• Use examples: Real-life stories and examples help explain complicated ideas, but keep them generic enough not to expose individual client data.
• Keep your personal accounts personal: If you want to mention anything about your financial services on personal social media, ensure it aligns with official guidelines.

Common Pitfalls: • Over-inflating performance data or ignoring disclaimers.
• Posting personal opinions or guaranteed statements on social media.
• Using excessive jargon that confuses rather than clarifies.
• Failing to label promotional content as promotional, which can mislead about objectivity.
• Forgetting to keep an archive of communications, making subsequent audits challenging.

Additional Canadian Regulatory Perspective

Communications standards in Canada are influenced by multiple authorities and guidelines, particularly CIRO’s rules and provincial securities commissions. The Canadian Securities Administrators (CSA) publishes Staff Notices that include best practices for public disclosures and marketing (see CSA Staff Notices on Public Disclosure and Marketing Materials).

Since January 1, 2023, Canada’s mutual fund dealers have been overseen by CIRO, which replaced the former MFDA and IIROC. CIRO sets out guidelines ensuring that communications are complete, current, and accurate. You can explore CIRO’s website to review the current rules for marketing and advertising. You should also remember that the Canadian Investor Protection Fund (CIPF) is the single investor protection fund in Canada, providing coverage should a member firm become insolvent.

Tying It All Together

Communications with clients are subject to the same scrutiny and care as other compliance-related issues, such as “Know Your Client” (KYC) and proper product suitability. In fact, transparent communication is central to forging a healthy advisor-client relationship. If a client calls you and says, “I’m not sure if I understand the fees on my recent statement,” that’s your cue to slow down, break things down into simpler terms, and ensure they get the clarity they deserve (and are entitled to).

The main takeaway is this: always keep it fair, factual, and compliant. Provide all relevant details in an inviting, easy-to-digest manner, and double-check your internal policies before releasing any new piece of communication. Over time, this approach builds client confidence and cements your reputation as a trustworthy financial professional.

References

• CIRO Rules on Advertising and Sales Communications
• CSA Staff Notices on Public Disclosure and Marketing Materials
• The Plain Language Movement and Resources

Essential Rules for Communications with Clients: A Comprehensive Quiz