At the end of February, 2013, investments in Canadian companies accounted for 58 per cent of all equity mutual fund money invested by Canadians, according to the Investment Funds Institute of Canada. U.S. equity funds accounted for 11 per cent.123render/Getty Images/iStockphoto
Securities regulators have committed to two rounds of research in the effort to decide whether to curb mutual fund fees with new regulation.
The Canadian Securities Administrators (CSA), a group representing all provincial securities regulators, has selected both an academic and a private sector group to research the country's mutual fund fee structures. CSA said Friday that reports by two different research teams would be ready for public review by early 2015.
These new studies are the latest in a protracted effort to reform the industry's use of so-called trailer fees, which are payments made by fund companies to advisers. Since nearly two thirds of Canadian investors hold mutual funds in their investment portfolios, this is an issue that could affect millions of Canadians.
The CSA's major investigation into trailer fees began in late 2012 with a report looking at the areas of the current fee structure where investors may not be adequately protected. The regulators made the case for better disclosure of fees, since many investors don't know about how these charges can take away from their returns, or understand how advisers profit from them.
At the time, the CSA found that average financial advisers earn 64 per cent of their compensation from trailer fees, more than double the portion of compensation reported in 1996.
Since the CSA's initial discussion paper, the investment community has been in constant communication with the industry, debating how to make the fees more transparent and whether some types of fees ought to be banned altogether.
The regulators sent out a request for research proposals in April this year, calling for independent groups to look into commissions earned on funds through sales and trailer fees, and how they might affect sales. The CSA has selected Douglas Cumming, professor and Ontario research chair at York University's Schulich School of Business, to investigate the data. A press release accompanying the announcement said that Mr. Cumming will soon request data form a sample group of fund managers. "Receiving this data is important to ensuring that any policy initiatives in this area are well-founded and supported by quantitative information," the release said.
Some large banks and independent investment firms say they have already been contacted by the Ontario Securities Commission about participating in the research, and have pledged to co-operate with any requests.
The second research group will look at whether a fee-based compensation system, where an adviser's pay is tied to a percentage of a client's assets, affects the advice investors receive compared to commissions. The study will be done by Toronto-based research and consulting firm Brondesbury Group, which will also look at client's long-term investment returns.