Newsmaker: Steering through choppy seas

The 64-year-old Bourque will put his stamp on IFIC by applying his trademark methodical and thoughtful approach that embodies respect for research and the consequences of actions.

“We all have our style, and there are leadership principles. But I would say my style is analytical and evidence-based,” says Bourque, a lawyer. “I tend to ask more questions than issue directives.”

Bourque took over the leadership post in mid-July from Joanne De Laurentiis, who retired after almost 10 years. Bourque also is chairman of the IFSE Institute, IFIC’s financial services education arm.

He takes over at a time when the mutual fund industry is undergoing intense competition from low-fee, exchange-traded funds (ETFs), as well as pressure from important regulatory and policy shifts.

With the final phase of the client relationship model (CRM2) now in force, fund industry participants must adjust to new requirements for enhanced disclosure, most significantly relating to investment performance and dealer compensation.

The industry also is dealing with mandatory Fund Facts delivery at the point of sale, an initiative unique to mutual funds. This document includes disclosure about management fund expenses (not included in CRM2), fund risk and the past performance of the fund. With so many layers of complex disclosure attached to mutual funds, IFIC’s membership of product providers and dealer firms may be among the most burdened by compliance requirements. But the necessity for industry adaptation won’t stop with CRM2. While adjustments to that regime are ongoing, Bourque has his eye on more recent regulatory initiatives that could shake up the industry further. The Canadian Securities Administrators (CSA) is investigating the banning of embedded compensation, such as trailer fees on mutual funds.

Also in the works is a CSA initiative regarding a best-interest standard to enhance the obligations of financial advisors and dealers to their clients. This initiative is in the consultation phase, with the CSA soliciting input on such topics as conflicts of interest, know your client, advisor proficiency and advisor credentials.

“Being a president and CEO will be an interesting challenge – it’s something I have never done, and I’ve always looked to stretch my skill set,” Bourque says. “The question is whether regulation will continue to be balanced: what is the outcome we are trying to achieve and the cost of getting there?”

Part of achieving the right balance is to ensure that the Canadian financial services sector remains competitive, both nationally and internationally: “The whole scope of all of the issues covered by CRM2 and best interest – together with other reforms – focus on disclosure, conflicts and the client relationship.”

Bourque believes the CRM2 rules, along with Fund Facts, will change the behaviour of advisors, firms and clients. Clients will receive information on all fees and commissions before any transaction takes place, as well as detailed annual statements on the cost and performance of their investments.

The CSA has already begun detailed research on the impact of the CRM2 and point of sale reforms on the behaviour of clients, firms and advisors.

The results will be illuminating, Bourque says: “Inevitably, the focus on fees will intensify and the conversations between clients and advisors will become more meaningful.”

It is a key issue: mutual funds remain the most popular investment vehicle in Canada, with one-third of Canadian households owning mutual funds.

Bourque says 85% of mutual funds are currently sold with a “bundled fee,” in which trailing commissions and fund-management costs are lumped together in a single figure, the management expense ratio (MER). (Some other sales charges, such as front-end loads and deferred sales charges, are not included in the MER.) Most mutual funds are owned by investors with less than $100,000 to invest.

“Before we eliminate anything, let’s understand what the consequences will be,” Bourque says. “Regulators should know what they want to do and why, how to achieve it, and be ready to deal with possible outcomes. There should be careful study before any major transformation.”

Although the fund industry has been criticized for high fees and their corrosive effects on returns, the rapid rise of ETFs is creating competition in the marketplace. ETF assets under management (AUM) currently stand at $103 billion, up 22% from a year earlier. They are still dwarfed by mutual fund AUM, of $1.27 trillion as of June 30, but this larger pool barely grew from $1.22 trillion a year earlier. As of June 30, mutual fund year-to-date net sales were $16.6 billion, down sharply from the $40.9 billion for the comparable six-month period in 2015.

The mutual fund industry is responding to competitive threats, Bourque says. “The industry has become more competitive and everyone is sharpening their pencils,” says Bourque. “Costs have moved to front and centre, particularly in a low return, slow growth environment. Competition is good. We’ve seen reductions in fees and those will continue.”

However, Bourque stresses, “The best product is not always the cheapest.” What is most appropriate often depends on the investor’s priorities, risk tolerance and time frame. Both mutual funds and ETFs are sold through advisors, and the advisor should recommend what is most suitable for the client, he adds.

Immediately prior to joining IFIC, Bourque was executive director of the B.C. Securities Commission. Prior to that, he was an associate partner with Deloitte Inc. in Toronto, leading the national securities and regulatory investigation practice.

Bourque has also been senior vice president, member regulation, for the Investment Industry Regulatory Organization of Canada; and director, market operations, for the Ontario Securities Commission.

He is a graduate of Osgoode Hall Law School, and a member of the bars of Ontario, Alberta and British Columbia. In addition to his experience as a securities regulator, he has been a prosecutor with the Ontario Ministry of the Attorney General, as well as a commercial crime prosecutor and director of criminal appeals and criminal law policy with the Alberta Department of Justice.

Bourque later became Deputy Attorney General and Deputy Minister of Justice with Alberta Justice.

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