FPAC ‘troubled’ by Ontario’s decision not to back ban on DSCs

The new Financial Planning Association of Canada (FPAC) is “troubled” by Ontario’s decision not to back the Canadian Securities Administrators’ ban on deferred sales charges (DSC) and has started an online petition urging the province’s government to reconsider its position.

This week, the CSA announced it will ban two types of commissions that are embedded in some mutual fund purchases: upfront sales commissions by investment fund organizations to dealers, which would lead to the end of the DSC option and associated redemption fees, and trailing commissions by investment fund dealers who only execute orders and do not provide advice, such as discount brokers.

FPAC commended this initiative and the move to make necessary changes to the Canadian regulatory landscape, although it warned that the changes do not go far enough to “solve the conflicts that persist within the investment industry in Canada today”.

The membership body wants a ban on all embedded compensation, including trailer fees, in order to create greater transparency for investors. It did, though, broadly welcome the CSA’s move.

It said: “The decision to ban all upfront sales commissions by investment fund organizations and dealers will eliminate a key point of conflict and abuse within the Canadian marketplace, create greater transparency, and protect consumers.

“Furthermore, the banning of the use of funds which pay trailing commissions by organizations that do not provide advice aligns with our view that only those entities providing advice should be entitled to compensation related to that advice, as well as the principle that there should be a clear distinction between fees paid for advice and planning, versus fees paid for investment management.”

Ontario’s decision to refrain from a ban on DSCs, however, was met with disappointment and a call to reconsider its position.

“In our view, greater regulatory fragmentation within the Canadian marketplace serves neither consumers nor the industry.

“We have started an online petition to encourage the Government of Ontario to reconsider its position, and failing a change in their position, for all investment fund manufacturers to cease the sale of fund series with upfront commissions. Please lend your name to this initiative.”

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