7.2 Disclosure Requirements: Information Folder & Fund Facts

The Canadian Insurance Regulatory Disclosure Architecture

The distribution of Individual Variable Insurance Contracts (IVICs) in Canada is governed by a stringent consumer protection framework designed to ensure transparency, clarity, and informed client decision-making. Unlike mutual funds, which fall under the oversight of provincial securities commissions and the Canadian Investment Regulatory Organization (CIRO), segregated funds are insurance contracts governed by provincial Insurance Acts.

National regulatory coordination across Canada's provinces and territories is spearheaded by two primary organizations:

• Canadian Council of Insurance Regulators (CCIR): An association of provincial and territorial insurance superintendents focused on harmonizing insurance regulatory standards across Canadian jurisdictions.
• Canadian Insurance Services Regulatory Organizations (CISRO): An inter-jurisdictional body dedicated to developing uniform standards of conduct, qualification, and licensing for insurance intermediaries.

In addition to provincial statutes, the Canadian Life and Health Insurance Association (CLHIA) has long set industry standards in CLHIA Guideline G2 (Individual Variable Insurance Contracts Relating to Segregated Funds), covering disclosure documents, contract terms, advertising and reporting. Ontario gives G2 legal force through O. Reg. 132/97. In November 2025, CCIR and CISRO published the consolidated Segregated Funds Guidance, which builds on G2 and sets national expectations for insurers and intermediaries on product design, disclosure, advice, annual statements and fundamental changes. Each province implements it within its own legal framework; the Insurance Council of BC, for example, adopted it effective immediately in December 2025.

---

Mandatory Pre-Sale Disclosure: The Information Folder

The main disclosure document for a segregated fund contract is the Information Folder. It plays a role similar to a securities prospectus for a mutual fund. It provides a comprehensive explanation of the contractual rights, insurer obligations, investment objectives, and fee structures governing the contract.

The Information Folder opens with a plain-language Key Facts section (what the contract is, what guarantees are available, the investment options, what it costs, what the owner can do after purchase, what information the owner will receive and how to cancel), followed by detailed disclosure in several areas:

• Contract Specifications & Legal Definitions: Clear definitions of the parties to the contract (policyholder/owner, annuitant, and beneficiaries), detailing rights of ownership, assignment limitations, and the distinction between revocable and irrevocable beneficiary designations.
• Guarantee Covenants: Full contractual terms governing the maturity guarantee (75% or 100%) and death benefit guarantee, including how withdrawals reduce the guarantees and how the maturity guarantee applies to the contract and to each deposit.
• Reset Provisions: Complete guidelines governing elective and automatic resets, including frequency limitations, daily valuation cutoff times, and maximum age ceilings (e.g., no resets permitted after age 75 or 80).
• Management Expenses & Fee Schedules: Itemized disclosures of all fees deducted from fund assets, including the Management Expense Ratio (MER), investment management charges, insurance guarantee charges, operating expenses, and advisor trailer fees.
• Taxation Principles: A comprehensive summary of the unique flow-through taxation structure of segregated funds, including how interest, Canadian dividends, foreign income, and realized capital gains/losses are allocated annually to unitholders, as well as the calculation of Adjusted Cost Base (ACB).
• Creditor Protection Provisions: An explanation of statutory creditor protection rules under provincial Insurance Acts, including conditions for protection (such as designating a spouse, child, parent, or grandchild, or an irrevocable beneficiary) and limitations regarding fraudulent conveyances.
• Insurer and Fund Information: The insurer's legal name and head office, each fund's investment policies and risk factors, the independent auditor, fundamental change rights, and a statement that each segregated fund's audited financial statements are available on request.

Insurers keep the Information Folder current and issue addenda when terms change; the advisor must deliver the most current version together with any addenda.

---

The Fund Facts Document: Key Sections and Plain-Language Format

While the Information Folder provides comprehensive legal disclosure, its length and technical complexity can be overwhelming for retail consumers. To ensure accessible transparency, Canadian insurance regulators implemented the Fund Facts document.

The Fund Facts is a short, standardized, plain-language document that gives prospective investors the essential information about one fund before they commit money. The insurer prepares a Fund Facts for every segregated fund available under the contract and keeps the current version on its website. Where the expense ratio differs by guarantee or fee option, the Fund Facts show the range and a table by option.

Under the Segregated Funds Guidance, each Fund Facts is headed with the insurer, fund and contract names and contains these sections:

1. Quick Facts: Date the fund was created, total fund value, net asset value per unit, number of units outstanding, the fund expense ratio (FER) (a range if it varies by guarantee or fee option), portfolio turnover rate, portfolio manager and minimum investment.
2. What does the Segregated Fund invest in? The investment objective, the total number of investments, the top 10 holdings and the percentage they represent, and up to two pie charts of the investment mix (by asset type, industry or region).
3. How has the Segregated Fund performed? Returns for up to the past 10 years, after the FER and for the most basic guarantee option: the average return (what $1,000 invested 10 years ago is worth now and the average annual return) and a year-by-year bar chart stating how many years the fund was up or down.
4. How risky is it? The insurer's volatility rating on a five-level scale (Low, Low to medium, Medium, Medium to high, High), set using generally accepted industry practice, with a warning that a low-rated fund can still lose money.
5. Are there any guarantees? A statement that the fund is offered under an insurance contract whose guarantees may protect the investment if markets fall, and that the MER includes the cost of the guarantee.
6. Who is this Segregated Fund for? The type of investor the fund suits, tied to its objective and risk rating.
7. A word about tax: Allocations, gains on switches or withdrawals, and allocated capital losses are taxable or claimable unless the contract is registered.
8. How much does it cost? Sales charge options (initial sales charge, any older DSC schedules, advisor chargeback, fee-based series), ongoing expenses (MER, TER and FER for each guarantee option, plus trailing commissions) and other fees such as short-term trading, switch and guaranteed income benefit fees.
9. What if I change my mind? The right to cancel, described below.
10. For more information: Insurer contact details and the ombudservice to contact if a complaint is not resolved.

---

Point-of-Sale Delivery Rules & Advisor Compliance

Under the CCIR/CISRO Segregated Funds Guidance, the timing of delivery is clear:

Delivery Rule: Before the customer applies for an IVIC, the advisor delivers the most current Information Folder (with any addenda) and the Fund Facts for each fund the customer intends to buy, and explains the Key Facts, the sales charge options and the fees. Before a later deposit into a fund under a contract the client already owns, the current Fund Facts for that fund are delivered first, unless an exception applies (for example, pre-authorized deposits into a fund the client already holds, or an urgent deposit the client consents to, with the Fund Facts sent within two business days).

The regulatory intent is clear: an investor must have the opportunity to review the fund's risks, costs, holdings, and performance before entering into a legally binding financial commitment. It is a serious regulatory violation for an insurance representative to obtain a signed application and deposit cheque and subsequently deliver the Fund Facts days later.

Delivery Methods and Verifiable Consent

Fund Facts may be delivered physically as a printed document or electronically (via email attachment or secure client portal). However, electronic delivery is legally valid only if the client provides explicit, verifiable prior consent. Agents should record the date and method of delivery in the client file so the delivery can be shown during an insurer or regulatory review.

---

The Right to Cancel (Two Business Days)

To protect consumers against high-pressure sales and second thoughts, every IVIC gives the owner a right to cancel (rescission), described in the Fund Facts under "What if I change my mind?". The owner can cancel without paying surrender charges or redemption fees.

The Cancellation Window

• The owner must send written notice to the insurer within two business days of receiving the confirmation of the contract (or of a later deposit).
• The confirmation is deemed received five business days after the insurer sends it, so the window cannot stay open indefinitely.
• For a later deposit, the right to cancel applies only to that new deposit.

---

Calculating the Refund

The refund follows the contract terms required by the Segregated Funds Guidance. The owner receives:

1. The lesser of the amount invested in the fund and the value of those fund units on the valuation day after the insurer receives the cancellation request, plus
2. A refund of any sales charges or fees paid on the transaction.

$\text{Refund} = \min(\text{Amount Invested}, \text{Value of Units}) + \text{Fees Refunded}$

The same rule applies whatever fund was chosen, including a money market fund (whose value rarely changes in a few days). The owner bears any decline but never keeps a gain.

Numerical Examples

A client invests $50,000 in an equity segregated fund and pays a separate $500 sales charge, then cancels within the window:

• Scenario A (Market Decline): On the next valuation day the units are worth $47,000. The lesser of $50,000 and $47,000 is $47,000; adding back the $500 sales charge gives a refund of $47,500. The client absorbs the $3,000 decline but pays no fees.
• Scenario B (Market Rally): The units are worth $53,000. The lesser amount is $50,000; adding back the $500 gives $50,500, everything the client paid. The client does not keep the $3,000 gain.

---

Cancellation Procedure & Ongoing Disclosure

Cancellation Procedure

1. Written Notice: The owner delivers written notice of cancellation to the insurer within the two-business-day window (a dealer may send it for contracts held in nominee name).
2. Date Stamping: The insurer records the date of receipt.
3. Unit Valuation: The insurer values the units on the valuation day after it receives the request.
4. Refund Calculation: The insurer pays the lesser of the amount invested and the unit value, plus fees refunded.
5. Remittance: The insurer pays the refund and cancels the contract or the deposit.

Continuous Disclosure Requirements

Consumer disclosure continues throughout the life of the contract:

• Annual Statement: At least once a year, owners receive a statement showing the value of their investments, every transaction, the fees and charges incurred and the value of their guarantees. Under the CSA/CCIR total cost reporting guidance (April 2023), which each province is implementing, the annual statement also shows the dollar cost of fund expenses and fees. The statement reminds owners to tell their advisor about changes in their circumstances.
• Notice of Fundamental Changes: At least 60 days before an increase in the fund expenses charged to a fund, a change in its fundamental investment objectives, a decrease in how often units are valued, or an increase in the insurance fee limit, the insurer notifies regulators, servicing advisors and every invested owner. Owners may then switch free of charge to a similar fund or withdraw without fees, by giving notice at least five business days before the notice period ends.

---

Disclosure Document Comparison Table