The debate over fees and how they’re charged doesn’t appear to be dissipating any time soon. In the most recent twist in the story, The Investment Funds Industry of Canada (IFIC) has called on regulators to establish rules to ensure that mutual fund investors don’t pay an embedded advisor fee when they’ve not actually received any advice.
“Investors who buy funds directly, for example through a discount broker, should be confident that they are not inadvertently overpaying by selecting a series that includes fees for services that are not available through that platform,” says Paul C. Bourque, Q.C., IFIC’s president and CEO. “The discount brokerage channel prohibits advice and so the sale of mutual funds that have an advice fee (Series A mutual funds) should not be allowed in that channel.”
Within the current system, investors using the discount channel may not even be aware they’re paying a fee for advice that they’re never going to receive, or even ask for. Bourque is pushing regulators to ensure that every fee – and its breakdown – is clear and transparent for investors. “The proposal would help to achieve a goal that the industry shares with our regulators: to ensure that fees are aligned with the services that investors receive,” he says. “It reflects the industry’s commitment to provide Canadian consumers with real and meaningful investment choices.”
“It’s also important that regulators are engaged because not all of the fund companies are members of IFIC and the dealers aren’t IFIC members either. In order to apply across the industry, the rule changes would have to be something regulators initiated.”
Bourque is positive about IFIC’s relationship with regulators, with whom he describes having “great cooperation”. He gives the example of IFIC’s recent call to regulators to extend client disclosure requirements to encompass the full Management Expense Ratio (MER) of investment funds. “CRM2 has made all dealer fees transparent, but the one piece that was missing was the fees paid for by the client for fund company management services,” Bourque says. “We wrote a letter to the regulators and have got a response back already. We are going to start meeting and moving that project forward soon.”
Like many in the industry, IFIC opposes the total ban on embedded fees
and gave reasons for their view publically when the CSA released its paper in January. While Bourque does agree there is a conflict built into the embedded compensation model, he believes that conflict can be mitigated and managed without implementing an outright ban. “We think that investors should have choice in how they purchase products and services,” he says. “We will be making a comprehensive submission filing around the submission date of June 9th."
What's behind IFIC’s CRM3 proposal?