The mutual fund industry continues to resist regulatory proposals that would require firms to disclose the dollar amount of trailer commissions that clients pay.
The Investment Funds Institute of Canada (IFIC) has published its comment on rule amendments that were proposed earlier this year by the Canadian Securities Administrators (CSA) as part of the ongoing client relationship model (CRM) reforms. This latest set of proposals focuses on cost and performance reporting, and aims to improve investors’ understanding of the costs they are paying for investments, and how those investments have performed.
On Friday, IFIC released its submission on the proposals, which takes issue with the proposal to require firms to reveal to clients the dollar value of their mutual funds’ embedded trailer commissions. IFIC argues that this creates an uneven playing field for mutual funds with other sorts of products; will be costly to implement; and won’t provide sufficient benefit to investors to outweigh the costs.
The industry has already strenuously objected to this proposal in a previous draft of the amendments, and the CSA rejected those arguments, saying, “We acknowledge the potential costs to industry, but believe that informing the investing public is worth this cost.”
The CSA proposal indicates that mutual fund investors do not understand trailing commissions, and that this represents a significant component of the ongoing price of a typical mutual fund investment. The regulators note that other countries are moving to ban the use of embedded compensation models, such as trailer fees, altogether, and that they believe that disclosure is a better approach.
IFIC maintains that the CSA has not carried out a proper cost-benefit analysis to show that the added costs of disclosure are worth it. And, it argues that the cost disclosure provided in Fund Facts documents is sufficient.
It also makes a variety of recommendations for changes to the proposals in areas such as performance reporting methodology, the use of original cost versus book cost, and areas where it says the proposals duplicate existing rules.
“We urge the CSA to reflect on its recognition of the unfairness issues towards mutual funds and work towards a common performance reporting and cost disclosure practice across financial products that do not disadvantage individual industry sectors,” it concludes.
The proposals are open for comment until Sept. 14.