Plans to reform Canada’s C$1.5tn (US$1.1trn) investment industry, in order to eliminate potential conflicts of interest on the part of those selling investment products, are running into “fierce resistance from asset managers” there, who insist the proposed changes will actually have an adverse effect on investors, the Financial Times is reporting today.
According to the FT report, which leads the publication’s weekly FTfm funds industry section, the ban on asset managers paying commissions to advisers for selling mutual funds is proposed as part of a package of reforms to the country’s investment product sales and advice regime by the Canadian Securities Administrators, which, like government regulators around the world, has been looking to raise investment advice and investment products marketing standards in recent years.
Similar reforms have recently been introduced in the UK and the Netherlands, and are due to be introduced across Europe in January.
The matter is of particular interest in Canada, though, the FT notes, since Canadian households invest “significantly more [of their financial wealth] than any other developed nation” in mutual funds, or around 40%, the matter may be of particular interest there. Approximately one in three of all Canadian households is said to own at least some mutual funds.
Today’s FT report on the CSA’s proposals for a proposed ban on commissions by Canada’s funds industry comes less than a month after a six-month consultation period on the propose changes, along with proposed changes to other elements of the existing funds regime, closed.
Among the other proposed changes contained in the consultation is what the CSA calls a “regulatory best interest standard, accompanied by guidance, that would form both an over-arching standard and governing principle against which all other client-related obligations would be interpreted”.
The consultation was the latest in a series that began in 2012, the CSA noted in an introduction, in which it said it launched the effort after it had “identified potential investor protection and market efficiency issues arising from the prevailing practice of remunerating dealers and their representatives for mutual fund sales through commissions, including sales and trailing commissions, paid by investment fund managers (embedded commissions)”.
“In particular, we identified how embedded commissions give rise to conflicts of interest that mis-align the interests of investment fund managers, dealers and representatives with those of the investors they serve,” the CSA added.
However, as the FT noted in its article today, the Royal Bank of Canada, Canada’s largest local asset manager, has warned that the proposed reforms would generate “unintended adverse consequences” for investors, including reduced access to advice, higher costs and increased complexity.
It quoted Doug Coulter, president of RBC Global Asset Management, as saying, in a letter sent to the regulator: “We do not think embedded commissions should be discontinued.”
“RBC added that there was a ‘distinct possibility’ that investors would not seek financial advice if they had to pay directly for this service'”, the article added.
It also pointed out that two trade bodies, the Investment Industry Association of Canada and the Investment Funds Institute of Canada, had also rejected the proposed ban on commission payments, arguing that it would restrict the availability of advice, as well as to potentially “damage Canadians’ ability to plan and save for their retirement”.
To read the FTfm story on the FT’s website, click here.
To read a summary of the consultation document, entitled CSA Consultation Paper 81-408- Consultation on the Option of Discontinuing Embedded Commissions, with a link to a 169-page pdf of the consultation paper, click here.