Canadian asset manager insist they only want the best for investors …and in their view, the latest reform of Canada’s investment industry introducing a ban on commissions paid to advisors and intermediaries by asset managers for selling their funds, will hurt investors.
Like in Europe (MiFID II) or in the UK (Retail Distribution Review), the Canadian regulator argues that the payment of advisors by asset managers increases the costs for investors and damages returns. Fair Canada, which represents investors, estimates that under the current legislation, commission represent more than C$5bn: “ordinary Canadians ends up with significantly less available for their retirement”. Canadian households invest around 40% of their financial mutual funds.
Strangely enough the industry does not approve of this proposal and argues that banning commission would lead to “unintended adverse consequences” for investors. It would reduce “the access to advice for many households and damage Canadians’ ability to plan and save for their retirement”.
Under the current regulation, commissions form part of the annual management fee charged to investors in Canadian mutual funds. The Canadian regulator objects to the fact that that the bundling of all costs makes it difficult for investors to evaluate the services they receive against the costs they pay and to assess the impact of fees on their investment returns.
On the other hand, to defend its position, RBC Global Asset Management stresses that investors will not seek financial advice if they have to pay directly for this service, which could have adverse consequences on their savings.
Vanguard, which has a reputation as an aggressive price competitor, brought its support to this reform which will lead to “more competition and a broader range of lower-cost investment providers offering greater access to a variety of different products”. Following the adoption of the reform in the UK, the share of retail financial products purchased without professional advice increased by 40% and active management declined by 7%.
Read the Financial Times full article here