It’s been a very quiet year since the Ontario Securities Commission (OSC) responded to a request from Ontario’s Minister of Finance, Peter Bethlenfalvy, to investigate potentially anti-competitive practices at Canada’s major banks.
In November 2021, the minister directed the regulator to investigate concerns about Canada’s big banks restricting their branches’ product shelves to proprietary funds, a move made that year by CIBC, Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) that matched the long-held practices of the other Big Six.
CIBC, RBC and TD cited higher product proficiency requirements for advisors as a result of the client-focused reforms (CFRs) as one reason for the move.
The minister also asked for analysis of the practice of tied selling within the bank system.
The commission submitted its report by the Feb. 28, 2022 deadline, but the Ontario government has provided no timeline for its review.
“After very public demand, there’s a collective ‘Now what?,'” said Michael Thom, managing director with CFA Societies Canada. “It makes you wonder what transpired to stop that urgency.”
Emily Hogeveen, a spokesperson for the Ontario Ministry of Finance, said in a statement that it “remains committed to protecting investors and ensuring that Ontario remains the most attractive jurisdiction in Canada to invest.” She added that the ministry continues to assess the OSC’s recommendations.
In statements, the OSC and the Canadian Securities Administrators (CSA) said they are focused on conducting targeted sweeps to ensure firms are properly implementing the CFRs, with the OSC noting that an update on these sweeps is due “later in the year.”
“While I understand what the CSA is doing, it doesn’t really address the outrage that occurred” one year ago regarding bank product, Thom said.
Thom also called the OSC’s latest statement of priorities “a rehash,” saying it addresses neither the CFRs nor the issues raised in Bethlenfalvy’s November 2021 letter.
“Where’s the innovation? The investor centricity?” Thom asked.
In the meantime, most investors hold their mutual fund assets with banks, representing “a fundamental problem with investor choice,” said Jean-Paul Bureaud, executive director with FAIR Canada.
“It makes it difficult for other [mutual fund] companies to get a toehold,” especially as the banks keep growing, he said, pointing to RBC’s bid to buy HSBC Bank Canada for $13.5 billion in cash.
Bureaud also said the banks’ stated reason for limiting product shelves — higher product proficiency requirements for advisors — raises questions about whether the competency bar is set too low for selling mutual funds in general.
“[T]he banks’ justification for limiting third-party fund sales implies that advisors in their branches are not able to understand mutual funds manufactured by others,” FAIR Canada stated when the news broke of the banks’ decision.
Bureaud said FAIR Canada will keep pushing for higher advisor competency across the industry.
Shelf status at the Big Six’s retail branches
TD, the first of the Big Six to announce its intention to limit its shelf in response to the CFRs, stood by its August 2022 comments to Investment Executive, which stated that a streamlined product shelf allows advisors “to spend less time on security selection” and “more time on client relationships.”
At RBC, Michael Walker, vice-president and head, mutual funds distribution and RBC Financial Planning, said in a statement that product shelf reviews are “ongoing.” He added that the bank had added funds to its shelf since January 2022 thanks to partnerships with his bank’s asset management arm.
CIBC declined to comment, but told IE in August 2022 that its shelf was well-priced and large, with some of its managed solutions subadvised by third parties.
In a statement, Bank of Nova Scotia said it had not made any changes or reductions to its product shelf offerings due to the CFRs. The statement added that its offerings included its own lineup of funds, some of which are managed by third parties and some of which contain third-party underlying funds.
Bank of Montreal said their approach of not actively selling third-party funds but accommodating clients who transferred them in had not changed.
National Bank of Canada, which had previously told IE that they did not actively sell third-party funds but would accommodate clients who transferred them in, declined to comment.
BMO and NBC’s practices preceded the introduction of the CFRs.
This story has been updated to clarify Michael Thom’s comments.