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FAIR Canada Newsletter
February 2015 

 

The Canadian Securities Administrators decided to hold firm on the July 15, 2016 date for implementation of the cost and performance reporting requirements. FAIR Canada is pleased the CSA has decided that investors will not have to wait longer to get the crucial information that will be in these reports. We also applaud the CSA for its decision to leave the definition of book cost unchanged and, as we recommended, resolve the question of providing position cost data for tax purposes in a practical and sensible way that will not cause delay. The CSA decided that "Registered firms that wish to provide tax-adjusted cost information to their clients can do so as supplementary information."

 

As for the decision to allow certain changes on existing account statements to be implemented in December 2015 instead of July, we would have preferred to see the original timeframe maintained but it appears the CSA felt there was a need for compromise.

 

Crowdfunding portals need to get their own startups right

We don't know yet whether Canadian securities regulators will permit equity crowdfunding to go forward. They're still thinking about it, pondering whether it's a good idea to let startup companies and small enterprises raise capital by selling shares to the public over the Internet without a prospectus. The regulators are right to be wary. There are significant risks and dangers involved.


 
However, the media and much of the blogsphere have no such qualms. They're in a breathless frenzy about crowdfunding's upside potential. Meanwhile, too little is being said about its hazards.


 
This is bound to create unrealistic expectations. It also will spawn a backlash, if equity crowdfunding does get approved and investors start experiencing the hard truth that most crowdfunded businesses will fail. The backlash could easily ruin crowdfunding.

 

This story originally appeared as an Inside Track op-ed in the online version of Investment Executive.  To read the rest of the article on our website, click here.
 

OSC Issues Staff Notice to Improve REIT Distributions Disclosure

 

FAIR Canada is pleased to see that the Ontario Securities Commission has issued a Staff Notice providing guidance to issuers of REITs to improve their disclosure when distributions exceed cash flows from operations. It is important for investors in REITs to know when they are receiving a return of capital (of their own capital) versus a return on capital (income generated from their investment) and to be able to assess the sustainability of the distributions they are receiving. FAIR Canada urges the regulators to go further and only permit the real return to be advertised and not permit REITS and other funds to advertise returns which include return of capital as this will only mislead investors. 

 

OSC Issues Investor News Notice about Structured Notes 

 

Following the CSA Staff Notice on Structured Notes the OSC has issued an Investor News Bulletin "Investing 101: Structured Notes". This is similar to the SEC's Investor Bulletin on Structured Notes issued this past January. The latest OBSI Annual Report notes that structured product complaints are on the rise.  We therefore welcome steps to improve investor decisions about whether to purchase structured notes.

 

Structured notes are complex investment products and are often difficult to understand, even for those with a high level of financial literacy. As noted in "Warning from the Top: Structured Notes"there are key questions that are highlighted in the SEC Bulletin that investors need to ask before considering or agreeing to purchase a structured note, including:

  • What are the fees and other costs associated with the investment?
  • How much of the issuer's estimated value of a structured note will I be paying?  
  • What other investment choices are available to me?
  • Are other products available that provide investment exposure to similar assets, indices or strategies? If so, how do the cost of these other products compare?
  • How does the payoff structure work?
  • and what Steadyhand calls the "clincher": Do I understand the investment?
 We encourage securities regulators to get this key information, including the above mentioned questions, into the hands of investors who are considering purchasing structured notes so they can consider whether it is an appropriate product for them. It is crucial that key information explaining the structured note, along with the associated risks, be made known to investors in plain language, before they decide to invest. Relevant information needs to be disclosed and information that bears heavily on the quality of a financial decision must be displayed prominently and in a way that is comprehensible to investors. 


 
Please click here to read more.   

 

 

The High Costs of Canada's Mutual Fund Based Retirement System 

 

Neil Gross appeared on CBC's The Exchange with Amanda Lang to discuss the impact of high mutual fund fees for Canadians.

 

High mutual fund fees may cause Canadians to have less money available for retirement and could force Canadians to delay their retirement by as much as eleven years, says David Macdonald in his report with the Canadian Centre for Policy Alternatives (the Report). The Report, titled "The Feeling's Not Mutual: The High Costs of Canada's Mutual Fund Based Retirement System", is discussed by Pete Evans of CBC News in this recent article. Where the last two decades have seen a decline in workplace pension plans, RRSPs have increased in popularity as vehicles in which Canadians can save for their retirement. The biggest asset in most RRSPs is mutual funds, which are managed by fund managers for a percentage fee. The Report says that while pension plans pay on average 0.38% to plan managers, mutual funds pay on average 2.1% to fund managers, such fees being paid directly by the mutual fund holder. The increased fees payable with mutual funds will take away from the returns payable to the holder, resulting in the potential for decreased retirement savings for Canadians. The Report notes that since most individuals do not have the power to reduce mutual fund fees, policymakers should work to have these fees are lowered. Doing so could play a large role in helping Canadians retire more comfortably. 

 

FAIR Canada in the News 

 

FAIR Canada works to bring important investor issues to the attention of media, the Canadian investing public, regulators, government, and industry participants. FAIR Canada news coverage this month included:

 

Globe Advisor - What to expect after fund-fee rule changes

CBC News | Business - AMANDA LANG Mutual fund fees eating into our retirement security, so why do we pay them?

thestar.com - Time to give ombudsman more power: Roseman

Winnipeg Free Press - What do we know? Canadian investors don't know what they're paying for: survey

CTV News - Investors should prepare to ask tough questions as new rules kick in

Financial Post - Final Canadian crowdfunding rules could be published by summer

Calgary Herald - Insider trading hearings face delays while ASC awaits ruling

Investment Executive - Among various decisions, the CSA's ruling on CRM2 deadlines is getting the most attention

Investment Executive - Fund firms cool to CSA data request

CBC News - Former Wellington West adviser fined $100K after investors suffer losses 

 

FAIR Canada is a national, charitable organization dedicated to putting investors first. 
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