Professor Douglas Cumming and his coauthors have published his long-awaited report
on whether mutual fund sales charges and trailing commissions influence advisors and their choice of investments.
“Both studies and the comments received during the previous consultation period are intended to be among the inputs that will be factored into the CSA’s determination of whether to effect certain policy changes,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. And initial observations suggest performance has a lot to do with investment choice but so too do embedded commissions.
Professor Cumming finds that:
· Mutual funds that perform better attract more sales.
· However, the influence of past performance on fund sales is considerably reduced when fund manufacturers pay sales and trailing commissions.
· As past performance becomes less influential on fund sales, so too is there a reduction in future fund performance.
· For mutual fund sales through fund distributors that are affiliates of the fund manufacturer, past performance has little to no influence on sales, and this also negatively impacts future fund performance.
· For mutual fund sales through fee-based purchase options, fund sales are highly influenced by past performance, and this positively impacts future fund performance.
This research is based on Professor Cumming’s analysis of detailed fund data, obtained directly from manufacturers of publicly offered mutual funds in Canada. Out of 113 mutual fund manufacturers contacted, 43 mutual fund manufacturers who collectively managed approximately 67% of mutual fund assets and 51.5% of fund of funds assets in Canada at the end of 2014 voluntarily provided data.
Mutual fund manufacturers provided 73 different data points for every fund series/purchase option combination they offered between January 1, 2003 and October 31, 2014.
The CSA aims to communicate a policy direction on mutual fund fees by the first half of 2016.