With the Cummings report expected next month, an industry insider is convinced the DSC fund’s days are numbered.
An industry insider believes the CSA in conjunction with the provincial securities regulators will order the elimination of DSC funds come February and after an orderly transition they will disappear from the Canadian financial services lexicon.
“Most of the provincial regulators support DSC [funds] going. Even if nothing else goes, DSC funds will go,” said an industry source with direct knowledge of at least one regulator’s ongoing review process, speaking on condition of anonymity. “There’s not a lot of support left for DSCs. They don’t want to hear any more arguments. They just feel there’s been too much pain.”
The DSC discussion is one that’s been ongoing for a long time. Here at WP we’ve found there to be support on both sides of the issue.
A number of important documents are expected to be released before then including a report from Schulich School of Business finance professor Douglas Cumming that will review the industry’s mutual fund fee structure with everything under consideration including DSC funds.
Although many of the regulators appear to have an appetite for doing away with DSC funds, the big question mark is whether the OSC, Canada’s biggest securities regulator, is ready to pull the trigger.
“If the OSC or anybody else says we’re not going to remove it I think there’ll be a stalemate and the CSA won’t be able to make a decision,” said the industry insider. “They’re the biggest by far but I don’t know for sure that the OSC supports it [removal of DSC funds].”
However, if you read the tea leaves, it’s clear that the previous report from the CSA was fairly opaque in its opposition to DSC fees; the Cummings Report will simply deliver the death blow.
“Remember that consultation [Brondesbury Report] on mutual fund fees? If you read that very carefully they’ve already made up their mind,” said the industry expert. “It would have to take quite a big push back to not go ahead.”
If all goes as planned and DSC funds are eliminated there’s expected to be an 18-24 month transition period to allow advisors the time to deal with clients needing to be moved over to fee-based or front-end load compensation structures.
WP reached out to a couple of Toronto-area advisors for comment but have yet to hear back.