FAIR CanadaLike us on Facebook  Follow us on Twitter  View our profile on LinkedIn
FAIR Canada Newsletter
October 2015 
Report to CSA indicates trailing commissions impact fund sales to detriment of investors  
 
Prof. Douglas Cumming's report, " A Dissection of Mutual Fund Fees, Flows and Performance" (the "Report") shows that trailing commissions do have an impact on investment in mutual funds, and it's an impact that harms investors.

He found that fund sales are less influenced by past performance when fund manufacturers pay trailing commissions. Indeed, he found that the greater the trailing commission, the greater the level of net flows that has no relationship to past performance. That's a bad thing for investors because it indicates something other than what's best for the investor is driving sales.

The Report also found that funds tend to have better future performance where their flow is sensitive to their past performance. Blunting that sensitivity - by letting something other than performance drive customers toward the fund (i.e., trailers) - just makes it less imperative for the fund to perform well; so it's not surprising that Prof. Cumming also found an increase in trailing commission rates also corresponds to a decrease in a fund's future performance. The Report states: "An increase in trailers corresponds to a decrease in performance...the data indicate that 2.5% of funds permanently increased their trailer fees....[and for those funds] alpha [risk adjusted performance] dropped by 32.4% on average."

To continue reading, click here
FAIR Canada and Osgoode Hall's Investor Recovery conference a success    
 
FAIR Canada and Osgoode Hall Law School co-hosted a conference in Toronto on October 26, 2015 entitled Public and Private Enforcement: Improving Recovery for Harmed Investors. The conference's keynote speaker, Ontario Securities Commission vice-chair Monica Kowal, focused her remarks on achieving stronger outcomes in investor protection. Throughout the day attendees heard from a wide range of panelists who discussed the relationship between public regulatory enforcement and private securities class actions, investor recovery facilitated by securities regulators, jurisdictional issues and investor recovery, industry funded investor compensation funds, the impact of whistleblower programs on investor recovery, no-contest settlements, and recovery through ombudservices. FAIR Canada wishes to thank everyone who participated in and attended the conference. The day was interesting and informative because of you.

A synopsis of the conference, as well as links to a full video recording of the conference and copies of all available conference materials will be accessible in the November edition of our newsletter and on FAIR Canada's website. 
Quebec urged to reform existing regulatory requirements to ensure better financial outcomes for consumers           
 
FAIR Canada provided comments to the Quebec government on its consultation arising from a Report on the Application of an Act Respecting the Distribution of Financial Products and Services and the proposals set out therein, as well as comments to highlight policy reforms that would improve consumer protection and improve the fairness and efficiency of the financial services marketplace.

FAIR Canada noted that many consumers across Canada (including consumers in Quebec) receive poor quality investment advice non-compliant with existing rules and, as a result, consumers take on more risk than they would be inclined to or need to take and have experienced substandard performance in their investment portfolios. FAIR Canada believes better financial outcomes for consumers will be achieved by making key changes to existing regulatory requirements, since these changes will bring about a more efficient financial marketplace as well as more proficient and professional advice for consumers. It is therefore essential for governments to act now to improve the existing regulatory framework.

FAIR Canada also called for specific policy reforms, including reforming mutual fund fees, instituting a statutory best interests standard and reforming the Fonds d'indemnisation des services financiers (FISF) to include an insolvency-based compensation fund.

To read all of FAIR Canada's comments, click here.
FAIR Canada supports reforms which will allow securities regulators to collect and publish information on the exempt market        
 
FAIR Canada offered comments on proposed amendments to National Instrument 45-106 Prospectus Exemptions that would introduce a harmonized report of exempt distribution (the "Proposed Exempt Distribution Report") and related changes to Companion Policy 45-106CP Prospectus Exemptions. FAIR Canada supports reforms to the Proposed Exempt Distribution Report that will allow securities regulators to collect and publish information on the exempt market.

FAIR Canada has observed that basic information necessary to understand and effectively regulate this area of our capital markets is lacking, and FAIR Canada has called on regulators to improve their understanding of the exempt market by collecting better information. FAIR Canada therefore supports the collection of better information on the exempt market so that regulators and the public alike can better understand this area of our capital markets and, in doing so, improve the policy-making process and facilitate more effective oversight of the exempt market.

FAIR Canada also made comments with respect to the information required in the Proposed Exempt Distribution Report. In particular, FAIR Canada requested that more specific information be provided regarding the size of the issuer, that the type of investment fund be indicated (closed-end fund, exchange traded fund, mutual fund subject to 81-102, commodity pool), that all applicable categories under which an individual qualifies as a purchaser under the exemption be identified, and that the issuer's parent (if applicable) be disclosed. The inclusion of this information would not be onerous and would be extremely valuable to policymaking initiatives.

Read our full comments on the Proposed Exempt Distribution Report  here.
Get Ready for the Kijiji Stock Exchange and Uber portfolio-sharing app       
 
In this month's Inside Track article for Investment Executive, Neil Gross asks if anything can stop consumers from using disruptive technology to sidestep the investment industry's business models. He says the real question we should consider is what, if anything, would make investors choose a regulated investment platform over some less expensive, digital workaround. He suggests that if the regulated option delivers a significant measure of real and effective protection for investors, the investment industry may be able to maintain its position.

Read the full article here. 
FAIR Canada AGM held in Montreal; appoints Brad Doney to Board of Directors        
 
FAIR Canada is pleased to announce that Bradley Doney was appointed to the Board of Directors during FAIR Canada's annual general meeting, held on October 5, 2015 in Montreal. Following the meeting, FAIR Canada hosted a reception for members and representatives of the Quebec consumer advocacy, regulatory and investment communities.

Mr. Doney, a resident of British Columbia, is a former commissioner of the B.C. Securities Commission and a recognized expert on investment firm compliance issues. He previously served as General Counsel and First Vice-President of Merrill Lynch Canada and as Senior Vice President and General Counsel at Midland Walwyn in Toronto. Mr. Doney has also served as Manager of Market Policy at the Toronto Stock Exchange. He is currently a consultant to the industry, writes and teaches for CSI Global Education and sits on IIROC hearing panels.

Mr. Doney joins the following directors, all of whom were re-elected at the annual general meeting:
 
Preet Banerjee - financial journalist.
Stephen Jarislowsky - portfolio manager and philanthropist. 
Guy Lemoine - retired vice-president of the Quebec Securities Commission. 
Rossa O'Reilly - former president of the CFA Institute. 
Ermanno Pascutto - FAIR Canada founder and former executive director of the Ontario Securities Commission. 
Robert Pouliot - professor in the School of Management Sciences at the University of Quebec. 
Ellen Roseman - financial journalist. 
Dawn Russell - former dean of Dalhousie Law School and current president of St. Thomas University. 
Marc Ryan - retired general counsel for Bell Canada and BCE Inc. 
Larry Waite - retired president and CEO of the Mutual Fund Dealers Association of Canada. 
Laura Tamblyn Watts - senior fellow at the Canadian Centre for Elder Law. 
FAIR Canada in the Media

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:

The Globe and Mail - 
OSC using more freeze orders to recoup fraud money, challenges remain 

Investment Executive - OSC to introduce whistleblower policy on Wednesday

The Globe and Mail - 
Report on mutual fund trailer fees gathers mixed reactions

Investment Executive - CSA report on fund fees reinvigorates heated debate

Financial Post - 
Influence of fund's past performance 'considerably reduced' when fund manufacturers pay trailing commissions: study 


Investment Executive - Industry veteran Brad Doney joins Fair Canada board 
Trending  

Regulators in UK and Australia advocate for best interests duty and a ban on conflicted remuneration (trailing commissions)


At the recent OSC Dialogue 2015 conference in Toronto, Martin Wheatley, former CEO of the UK's Financial Conduct Authority (FCA) and Greg Medcraft, Chairman, Australia Securities and Investment Commission (ASIC) strongly advocated that disclosure is not effective and that other measures - namely a duty to act in the best interest of investors, a ban of embedded commissions (and removing other conflicted incentives), and the ability to intervene if products are not in the best interests of investors - are all necessary reforms to adequately protect investors. Howard Wetston, Chair and CEO of the Ontario Securities Commission, noted that the issue of a statutory best interest duty is being examined by the OSC and other Canadian regulators and that they will be releasing research on the alignment of incentives in the near future. To see James Langton's coverage of this discussion at OSC Dialogue, click here.
FAIR Canada is a national, charitable organization dedicated to putting investors first. 
Please consider making a tax deductible donation.
0
 
0Do you know anyone who would be interested in receiving 
FAIR Canada's Monthly Newsletter?