The recent proposal by the CSA to ban embedded mutual fund fees would likely be a redundant move, as key concerns around transparency and conflict of interest will effectively be addressed by CRM2 and by implementation of some of the targeted reforms proposed by the CSA in April, says the former president of The Investment Funds Institute of Canada.
“By the end of next year, every single person who has an account, whether they’re buying mutual funds or a range of securities, they’re going to get a statement that gives them two key pieces of information – here is how your account performs and in dollar terms, here’s what you paid your dealer,” says Joanne De Laurentiis, president and CEO of IFIC.
“The argument that people will know what they’re paying only if they’re in a fee-based account just falls away, it’s no longer true.
“Look at who in the industry is arguing that transparency doesn’t exist – they’re all fee-based advisors. You’ve got none of them saying, ‘Oh by the way, by the end of 2017, it’s pretty much going to be a level playing field where everyone, regardless of what they’re paying, will have that specific dollar number.’”
She adds that forcing a sudden banning of fees before the learnings of CRM2 can be absorbed will likely do more harm than good.
“Our point, when we saw the notice two weeks ago, was to say to the regulators, ‘you need to have a paced approach here, you need to learn a lot about what the reforms of CRM2 do once in place’. We are addressing the transparency issue, we are addressing the best interest question – let’s do those.”
De Laurentiis points to other jurisdictions that have removed embedded fees altogether – the UK, Australia and Netherlands – saying that actions haven’t panned out as regulators had hoped.
“When we observe what is happening in other jurisdictions that started with banning fees, they’re now having to go back and are making some of the changes we are talking about,” she says.
“In the jurisdictions that did ban commissions, they did not just focus on mutual funds, it looked across investment products, this is one of the oddities of the question the CSA proposes – that they will only update mutual fund fees, and we don’t think that’s appropriate.”
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