Advisors are so familiar with mutual funds that they may forget to remind clients of the value proposition funds offer, even as allegations of market timing rattle the industry, says Tom Hockin, president and CEO, Investment Funds Institute of Canada.

Addressing delegates today at IFIC’s 18th Annual Conference in Toronto, Hockin said the industry is facing “a perfect storm with regard to markets and a perfect blizzard with regard to regulations.”

He explained the perfect storm as three storms merging into one: allegations of market timing by the Ontario Securities Commission; media reaction to OSC probe; and “five years of soft markets”.

Moving to place the market timing allegations in perspective, Hockin said the OSC probe presents an opportunity for the fund industry and regulators to define what is abusive trading going forward.

After reminding the audience that market timing is not illegal, Hockin said, “It is the protecting of long-term shareholders that is the duty of care for the mutual fund manager. There are many ways to do this. Let us not forget as we deal with the quick round trips in and out of funds that, in spite of all this, liquidity for the average investor must also be maintained.”

“The regulator in the past was not always comfortable with penalty fees because of this. Nor were they comfortable with fair valuing to prevent market timing.”

“We and the regulator care and should be in the same boat. We want to define what is abuse together going forward.”

Hockin said IFIC has developed a toolbox to give guidance to member firms and regulators on market timing. The tools proposed by IFIC include: monitoring trading effectively; penalty fees to deter market timing; fair value pricing of mutual funds; and trading restrictions on accounts where inappropriate trading is recognized.

Hockin said the tool box provides “guidance to our members, and is a very important set of recommendations”

He added that IFIC is waiting for the full report on the OSC’s market timing probe, and in particular, guidance of what abusive market timing would be.

“We shouldn’t underestimate the work that will be required by all of us to ensure investor confidence,” Hockin said.

Referring to the second storm, Hockin responded to criticism that IFIC has been unwilling to play a role in the market timing saying such complaints were “ludicrously inaccurate”.

As for the third storm, Hockin said after five years of soft markets, it is not surprising that investors are focusing on mutual fund fees. However, he said comparing fees paid by U.S. and Canadian investors was like comparing apples with oranges.

He said Canadian investor continue to want investment advice, while most U.S. investors buy funds on their own.