When the Ontario government first went bumbling into the regulatory policy arena to interfere with the Canadian Securities Administrators’ (CSA) decision to ban deferred sales charge (DSC) mutual funds, the move was arrogant and ill-conceived. Now, in the midst of a global pandemic, that decision looks worse than ever.
Last year, the Ontario government’s decision to defend DSCs smacked of a tepid effort at Trumpism — posing as the champion of business by ham-handedly rejecting regulation without even allowing public consultation. More concerning, the move undermined the independence of the Ontario Securities Commission and threatened investor confidence.
Commendably, the rest of the CSA did not back down in the face of Ontario’s impulsiveness. While that’s good news for investors in much of the country, the result is added compliance costs for firms facing two regulatory realities in the years ahead. More important, with the Covid-19 outbreak inflicting extreme economic damage, artificial constraints on investor liquidity have gone from being an aggravation to an outrage.
The DSC structure has long been criticized for locking investors into underperforming products, which is especially problematic in the current climate. Amid intense pressure on household finances, constraints on investor portfolios don’t simply inflict a modest opportunity cost by potentially depriving investors of marginally better returns; they may be cutting into financial lifelines for hard-hit households.
While financial markets have recovered from the initial shock of the pandemic, the economic damage is likely to get worse before it gets better. As government supports and sympathetic creditors taper off in the months ahead, more households are likely to rely on savings to sustain themselves. Paying penalties to access your own funds amid financial hardship adds insult to injury.
Hopefully, Ontario will yet see the error of its ways. DSCs were never the hill to die on.
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