Empire Life expands digital applications to seg funds

Some financial services industry associations are lauding the steps the Canadian Council of Insurance Regulators (CCIR) have taken to align the regulations facing mutual funds and segregated funds more closely, according to submissions published in response to the CCIR’s recent segregated funds working group issues paper.

However, the associations have different views on the extent to which the rules should be harmonized.

The CCIR paper, published in mid-May, highlights the comparative regulatory frameworks for seg funds and mutual funds and invites stakeholder feedback on how to address key gaps between the two sets of regulations.

The Investment Funds Institute of Canada (IFIC) submitted comments in response to the paper on Tuesday that commend the CCIR for conducting the review, noting the benefits of greater harmonization to consumers.

“In many cases, consumers are buying their insurance and investment products and services from the same individual or firm,” says Paul Bourque, IFIC’s president and CEO, in a statement. “They should be able to expect consistency in important areas such as cost disclosure, training, continuing education and account oversight.”

The Independent Financial Brokers of Canada (IFB), which published its response to the issues paper on July 15, also suggests that greater harmonization in certain areas would be positive. However, the IFB emphasizes that the respective regulations must also reflect the unique features of the products in question.

“In this respect, we think Canada’s Joint Forum position from 1999 remains relevant today, in that the regulation of mutual funds and [individual variable insurance contracts] share similar regulatory objectives, but ‘because the products are based on fundamentally different legal principles … harmonization of the result, rather than harmonization of rules, should be the goal’,” the IFB’s submission states.

IFB compiled its submission based on a survey of its members, in which 100 financial advisors provided responses. On the topic of disclosure of fees and compensation, many of the IFB members surveyed agreed that the disclosure required for mutual funds under the second phase of the client relationship model (a.k.a. CRM2) should apply to seg funds as well as long as the disclosure explains the insurance components of a seg fund that result in a higher management expense ratio (MER).

IFB members showed less support for applying the CRM2 performance reporting requirements to seg funds, however, given the differences between the products and the fact that performance information ignores the estate planning benefits and guarantees associated with seg funds.

IFIC, meanwhile, supports harmonizing both cost and performance reporting for seg funds and mutual funds.

IFIC’s submission also urges the regulators to consider greater regulatory harmonization and collaboration in certain areas not raised in the working group’s issues paper. For example, it calls for better information sharing about disciplinary actions against dual-licensed advisors and greater co-operation between the CCIR and securities regulators, generally.

“We encourage the CCIR and the Canadian Securities Administrators to establish a practice of regular information exchanges about new initiatives, with a shared objective of regulatory harmonization,” says Bourque. “This would ensure consistent rule-making across comparable products from the outset and avoid the creation of future regulatory gaps and inconsistencies.”

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