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23rd of October 2018

Economy



Ontario opposes proposed ban on controversial mutual fund fees | The Star

The Ontario government has shot down a proposed ban on controversial mutual fund charges, prompting concerns from seniors worried about the impact on their retirement savings.

Wanda Morris of CARP said the move puts the Ford government on the side of big mutual fund companies and already “very well-to-do” financial advisors — instead of average investors.

Ontario finance minister Vic Fedeli has said his government does not support a proposed ban on deferred sales charges on mutual funds.Ontario finance minister Vic Fedeli has said his government does not support a proposed ban on deferred sales charges on mutual funds.  (COLE BURSTON / THE CANADIAN PRESS)

After six years of consultations, “we felt the industry had just whittled away reforms; there were crumbs left on the table,” said Morris, of the advocacy organization formerly known as the Canadian Association of Retired Persons.

“Now the Ontario government is looking at sweeping those away as well.”

A ban on upfront commissions and deferred sales charges on mutual funds was proposed by the Canadian Securities Administrators Sept. 13, with the agreement of all provincial regulators including the Ontario Securities Commission.

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Deferred sales charges are fees customers pay unless they hold on to a mutual fund for a certain length of time, typically five to seven years.

Neither upfront commissions nor deferred sales charges are dependent on how the fund performs and Morris says they pose a conflict for investment advisors.

“The problem with the 5 per cent is they haven’t done anything other than sell the fund,” said Morris. “So there’s no relationship between services provided and this significant cheque that the advisor gets.”

For investors, it’s really a “double whammy,” she said, because the commission means a loss on future earnings if that fee money had remained in the portfolio.

“With the effect of compounding, it can have a massive effect on people’s retirement savings,” she added.

In announcing the government’s stance last week, Finance Minister Vic Fedeli said it does not agree with disallowing embedded deferred sales charges.

“Our government has committed to making Ontario a competitive place to invest, grow and create jobs,” he said. “This includes ensuring Ontario is ‘open for business.’ ”

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If the proposed amendments are implemented, it will “discontinue a payment option for purchasing mutual funds that has enabled Ontario families and investors to save towards retirement and other financial goals,” said Fedeli, the MPP for Nipissing.

“Our government does not agree with this proposal as currently drafted. We will work with other provinces and territories and stakeholders to explore other potential alternatives to ensure fair, efficient, capital markets and strong investor protections.”

The move has left many in the industry scratching their heads, given jurisdictions around the world — including the United Kingdom — have done away with similar charges.

Morris, who has written to Fedeli about the issue, said research indicates that mutual funds without the fees earn higher returns.

She believes best solution is for clients to pay for advice independently, and then directly invest into whatever funds or assets “make the most sense for them.”

“If you are paying an extra percentage or two of commissions, it can mean that you end up with a third less of your retirement nest egg... while it sounds a little bit innocuous — a percentage here or there — with the effect of compounding it can have a massive effect on people’s retirement savings.”

Liberal MPP Mitzie Hunter — who five years ago was tasked with creating a pension plan for Ontarians not covered by company ones — said “if the government claims it wants to be fair and open for business, then why not protect Ontarians from these fees and help them save for their retirement future? We know the industry supports these amendments.”

Anita Anand, a University of Toronto law professor who specializes in investor protection, said the government has the authority to do so, it’s “highly unusual” to intervene so late in the process, essentially when all sides have agreed and new rules are being introduced.

“The downside is that everyone is now uncertain about the direction in which this proposal will travel,” said Anand. “Uncertainty in the capital markets is not something that should be fuelled by the government of the day – no one benefits from it.”

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