The Canadian Securities Administrators yesterday released a discussion paper intended to solicit feedback on the structure of mutual fund fees in Canada. In addition to providing an overview of the current mutual fund fee structure, the paper identifies investor protection and fairness issues resulting from the current structure, and also considers the potential regulatory options available to the CSA to address the identified issues.
Specifically, the paper considers such issues as the lack of investor understanding of fund costs, potential conflicts of interest at the mutual fund manufacturer and advisor levels, the potential for cross-subsidization of commission costs, alignment of advisor compensation and services, and the potential for low-cost options for do-it-yourself investors.
In response to the identified issues, the CSA state that they may consider a number of potential regulatory changes, including: (i) establishing a minimum level of ongoing services that advisors would have to provide investors in exchange for payment of trailing commissions; (ii) requiring a standard class for DIY investors with no or reduced trailing commissions; (iii) requiring that the trailing commission component of a mutual fund's management fee be unbundled and charged and disclosed as a separate fee; (iv) setting a maximum limit on the portion of mutual fund assets that could be used to pay trailing commissions to advisors; and (v) implementing additional standards or duties for advisors.
Also of note, the impact of any potential regulatory changes could affect stakeholders outside the mutual fund industry. Specifically, the CSA state that while the paper focuses on mutual funds, the regulatory changes may also eventually capture investment funds and comparable securities products.
The CSA are accepting feedback on the consultation paper until April 12, 2013. For more information, see CSA Discussion Paper 81-407.