TIME FOR LEADERSHIP
| "Change will not come if we wait for some other person or some other time. We are the ones we've been waiting for. We are the change that we seek." - Barack Obama |
FAIR Canada has submitted comments to Canadian securities regulators, stating that urgent reforms must be made to the mutual fund fee structure in order to protect consumers. With over 12 million Canadians owning mutual funds, and 72% of Canadians with RRSPs holding mutual funds within their RRSPs, it is clear that mutual funds are important to the retirement savings and financial security of Canadians.
Improved disclosure is important but is inadequate to address the serious conflicts of interest presented by embedded (hidden) commissions (referred to as trailing commissions). These conflicts are systemic and structural in nature and are not addressed by current regulatory initiatives. To address these serious issues, we urge the banning of third-party embedded commissions.
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"In a chronically leaking boat, energy devoted to changing vessels is more productivethan energy devoted to patching leaks." - Warren Buffett
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Benefits of banning third party embedded commissions include:
- Advisors will be more likely to make investment recommendations that are in the best interest of the consumer, since the advisor will no longer be incented by higher trailing commissions or have their objectivity unintentionally clouded by the existing compensation structure;
- Consumers will know that they pay for "advice" and will have more control over the costs that they pay;
- Consumers will be able to assess the value of any service(s) they receive against the costs they incur;
- The fee structure will be simplified and made more transparent;
- Improved price competition for mutual funds should lower the average fees paid by Canadians, which are currently among the highest in the world;
- Enhanced professionalism in the financial services industry and enhanced public trust in the industry and financial markets.
FAIR Canada also recommends, until a complete ban on trailing commissions is implemented, that an execution-only series or class of mutual fund, which has no trailing commission, be immediately required to be offered at discount brokerages or direct from the manufacturer.
Strong support for banning embedded commissions was evident from numerous submissions from other stakeholders which favoured reform of the mutual fund fee structure. Many individuals wrote in support of urgent reform of the mutual fund fee structure and we are very encouraged that individual Canadians are making their voices heard on this issue. All of the comments are publically available here.
Read our full story for a summary of some of the comments made in support of reform, including by the OSC's Investor Advisory Panel, Keith Ambachtsheer, Steadyhand Investment Funds and the Small Investor Protection Association.
