Ontario right to oppose mutual-fund trailer bans, says Primerica Canada CEO

He cited safeguards for investors like proper disclosure, DSC period restrictions, and leeway for withdrawals

Ontario right to oppose mutual-fund trailer bans, says Primerica Canada CEO

Several weeks after the Ontario government drew strong reactions by opposing a proposed ban on deferred sales charges (DSC) for mutual funds, the CEO of a company that distributes financial products has weighed in to support the unpopular opinion.

“For over four years I have been watching the debates and various viewpoints on how mutual fund representatives — advisers — should be paid,” said John A. Adams, CEO of Primerica Canada, in a commentary published by the Financial Post. “Some of these discussions have led to healthy outcomes where the industry has adopted restrictions such as not allowing the DSC period to extend beyond the investment horizon of an individual investor.”

Calling the proposed ban “draconian,” he warned that its approval would leave many investors of modest means — “those without a large amount to invest who rely on commissioned advice without an upfront fee” — unable to receive advice from an advisor. “When this sort of drastic market intervention is proposed, it is appropriate for the minister of finance to step in, to look at the concerns and weigh the policy options to ensure a balanced policy outcome.”

In defense of the DSC option, he pointed out that mutual funds sold under that compensation scheme, with proper disclosure to the client, allow deferral of fees while providing advisors with upfront compensation for significant work and advice, especially at the start of a client relationship.

“Without this type of compensation, there is far less incentive for an adviser to work with a client with modest assets,” Adams said.

He went on to say that a DSC will only apply for investors who withdraw more than 10% of their investment annually before it has been held for the DSC period. There’s also an option for investors to rebalance and switch to another fund within the same fund company without getting hit with a charge.

“The DSC works well for investing long term, particularly in RRSP accounts, where short-term withdrawals are not expected nor recommended,” Adams argued, adding that a ban would disproportionately impact middle-income Canadians who will no longer have access to the advice that accompanies mutual fund investments.

As for the possibility of robo-advisors filling the gap, he pointed to recent research conducted by Pollara for the Investment Funds Institute of Canada (IFIC), which has previously opposed a ban. It found only 23% of mutual-fund investors had an awareness of robo-advisors, and only 3% have used one. Human advice was much more prized, with 76% of mutual-fund investors saying they’ve consulted their advisor for financial planning, investment planning, or retirement planning.

“A growing majority of investors with advisers continue to prefer paying their adviser through mutual funds fees,” he added, noting an increase from 53% last year to 59% this year. “If our provinces is open for business, that should mean that the average citizen should be able to choose how they participate in capital markets. They should not be forced to turn to a robot for financial advice.”


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