The Investment Funds Industry of Canada (IFIC) proposed today that the sale of mutual funds that charge an embedded fee should be restricted to distribution channels that permit the provision of advice.
Some investors pay embedded fees for advice on funds acquired through discount brokers, which are explicitly prohibited from providing advice. IFIC’s proposal says regulators should introduce rules to prevent such arrangements.
“Investors who buy funds directly, for example though a discount broker, should be confident that they are not inadvertently overpaying by selecting a series that includes fees for services that are not available through that platform,” says Paul Bourque, president and CEO of IFIC.
IFIC notes that many companies already offer mutual fund series that pay a low trailer, or no trailer, for do-it-yourself investors, or investors who have arranged to pay for advice directly. “The industry’s proposal would advance the goal of ensuring that low-trailer or no-trailer funds are available to these types of investors in a more uniform and transparent way,” IFIC states.
Earlier this year, the Canadian Securities Administrators issued a paper that contemplates doing away with embedded fees and requiring instead that dealers charge clients directly for advice. The paper raises regulators’ concerns about the distorting impact of embedded compensation arrangements on both investor outcomes and industry competition. Investor advocates have long called on regulators to ban embedded fees as the surest way to address these concerns. The consultation period on that paper runs until June 9.
Read: Regulator asks: Show us proof of harm
Read: The end of embedded commissions? How we got here
“Today’s proposal would help to achieve a goal that the industry shares with our regulators: to ensure that fees are aligned with the services that investors receive,” Bourque says. “The industry is dedicated to working with regulators to protect investors by addressing any gaps that exist and improving the investor experience at every stage.”
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