IFIC calls for more clarity on registration reform

The Registration Reform Project has received a mixed review from IFIC, as the fund industry group has called for improved clarity on a number of the RRP’s initiatives.

Not surprisingly, the majority of IFIC’s concerns focus on possible new requirements for the mutual fund manufacturers, ranging from the definition of a “fund manager” to how best to deliver point-of-sale documents.

But IFIC also offered comment on a number of initiatives aimed at the advisor, putting its support behind improved clarity for the advisor–client relationship, as well as incorporation for sales people.

“IFIC has a very long history of supporting the MFDA position in terms of allowing the payment of commissions into a personal service corporation,” says Chris Enright, executive vice-president of FundEX Investments and chair of IFIC’s dealer/advisor task force.

The problem, he points out, is that to allow such payments, the CSA needs to bring the Canada Revenue Agency into the consultation process, as the tax agency has already been challenging this practice under its anti-avoidance rules.

“This issue has the potential to be the worst unexpected outcome of a positive rule if ignored by other stakeholders,” says Enright. “We would greatly appreciate any help that the CSA and the SROs could give us in ensuring intergovernmental resolution of this issue.”

The task force also called for placing more responsibility on clients to ensure they understand the relationship with their advisor.

“What we’re looking for is additional clarification on the role of the advisor and the dealer in the sales process,” says Enright. “We believe we need to strengthen the understanding of the investor’s role in that process. We need to make sure that at the time of account opening, clients and advisors are on the same page as to what expectations are going to be.”

But he cautioned that any new regulations on account-opening will need to remain flexible to accommodate varying business models.

The question arises, however: Should advisors be content to let the mutual fund industry speak for them?

“The industry still talks to us as though we are a major sales machine, as opposed to as advisors who come from a financial planning background,” says John DiNovo, consulting advisor with Advocis. “Are we given all the tools; do we have a voice on how the performance is delivered and all this stuff? Not really.”

Since the goal of regulation is ostensibly to protect consumers, DiNovo says the reform process should be a bottom-up affair, starting with the investor. Since advisors are the element of the industry with the closest investor contact, such an approach would also give planners and brokers more input into the reform process.

He points to the current electoral reform consultations under way in Ontario, which started with the creation of a council of citizens to study the issues and develop a reform policy.

“Over in England, they have a similar sort of thing for investors,” DiNovo says. “Julie Black from the London School of Economics made a submission that the investor is not being heard here. In the IDA report that came out on registration reform, there was no comment on her recommendation, which proves to me that the industry really isn’t that sensitized.

“The real point is that the whole process is probably ass-backwards, and it should be coming up from the bottom.”

There is a 120-day comment window on the RRP, which is currently open, followed by a review process. There may be another comment period after this, before the CSA begins finalizing regulations in 2008.

On the upside, it appears that implementation will be phased in, rather than the regulators imposing a set date for a switchover.

“Implementation is working itself out. I think at the initial stages, there was a notion that implementation would see everything happen all in one day and it would be extremely elegant to everyone who looked on and extremely disastrous to everyone who had to absorb it,” says Murray Taylor, president and CEO of IGM Financial and chair of IFIC’s Registration Reform Project Board Committee.

“I think we’re going to find somewhere in the middle where it will get chunked out in natural pieces and natural approaches.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(02/09/07)

Steven Lamb