Change coming to Canadian mutual fund fee structure?

CSA awards two contracts to conduct research on mutual fund fees.

It seems regulators are getting set to revamp mutual fees in Canada. The Canadian Securities Administrators (CSA) on Friday that the organization has awarded two research contracts to firm to review Canada's mutual fund fee structure to find out whether “sales and trailing commissions” influence fund sales, as well as whether or not fee-based or commission-based compensation changes “the nature of advice.” 

For those who have long complained that mutual fund fees are too high in Canada, or that the current compensation models influence advice, the announcement will come as good news. According to the CSA presser announcing the contracts, “…[the] research marks an important step in advancing a policy decision on mutual fund fees and follows a request for proposals by the CSA for independent third-party research to evaluate whether regulatory action is needed regarding these fees.”

One of the contracts goes to Douglas Cumming, professor of finance and entrepreneurship and the Ontario Research Chair at the Scholarch School of Business, York University. He will collect and review data on whether sales and trailing commissions influence fund sales. As part of his research, professor Cumming will be requesting data from a representative sample of investment fund managers in the coming months. In addition to this research, the Brondesbury Group will conduct a literature review to assess whether the use of fee-based vs. commission-based compensation changes the nature of advice and investment outcomes over the long term. This data, and the research, according to the CSA, “will be important to ensuring that any policy initiatives in this area are well-founded and supported by quantitative information.”

The research reports by Professor Cumming and the Brondesbury Group are expected to be completed and made publicly available in the first quarter of 2015. 

The latest round of study follows on an the publishing, in December 2012, of a CSA discussion paper that identified potential investor protection issues arising from Canada's current mutual fund fee structure.  Members of the CSA then conducted extensive stakeholder consultations, including a public roundtable in June 2013 and discussion forums in the summer and fall of 2013.