The Ontario Securities Commission quashed a poison-pill takeover defence by ThirdcoastPeter Power/The Globe and Mail
Securities regulators and the mutual fund industry set for a showdown over whether the investments' fee structures should be changed to better protect investors.
But while it would take several years to changes the way financial advisers are compensated for selling funds, the more immediate concern for the industry could be its reputation with the more than 60 per cent of Canadians who buy them.
The Ontario Securities Commission will hold a roundtable in Toronto on Friday to review how mutual fund fees are disclosed, how embedded compensation affects investors and what clients get for their trailer fees, the hidden amounts paid by fund companies to advisers. The regulators want to uncover any "investor protection or fairness issues" in the current system and fix any they find.
The OSC event is a response to the discussion paper written by the Canadian Securities Administrators, a body that represents all provincial securities commissions. It suggested investors often do not know what fees their advisers are pocketing from the funds they recommend and sell.
Most of the asset management companies aren't in favour of too much change, though, and some were downright offended by the paper. Invesco Canada Ltd., which operates Trimark, Invesco and PowerShares brands, said it found the discussion paper "appears to be solely focused on painting a negative picture of advisers, on the mutual fund management industry as tools of advisers, and on fees."
The note went on to say that Invesco is tired of regulatory initiatives that aim to "bring transparency to the costs of investing but that ignore virtually all other types of investments."
The CSA's most recent step toward fee transparency was to work on new disclosure rules that require reports of costs be sent out to mutual fund investors. But the second phase of these so-called "client relationship model" rules does not take effect until later this year, and then the three-year implementation process begins.
Since changing the trailer fee structure would be an even bigger challenge than tackling disclosure, there's some skepticism that reform can be made quickly, if at all. "The CSA is going to have to do a lot of work on the impact of all the changes," said Scott Chan, an analyst covering asset managers for Canaccord Genuity. "They really don't have much research on it yet."
But some industry leaders already seem to be preparing for change, according to Noel Archard, head of BlackRock Canada, well-known for its iShares exchange-traded funds. "Since December I've heard buzz in the industry with people reacting to [changes to fee disclosure and fee structure] as though it's sort of done," he said.
Although he's in the business of selling ETFs, Mr. Archard says the debate is important because anything that tarnishes the reputation of the industry is bad for all the players, and ETFs should be held to the same standards as mutual funds. "You could have an ETF that has a trailing commission, and every fund has tax built into it," he said. "People just need to understand what they're getting."
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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