IFIC conference update: New chair says closer scrutiny will rebuild trust

(September 29, 2005) The new chair of IFIC has called for closer scrutiny of the fund industry she represents, suggesting making managers personally liable for their actions, rather than setting up an investor protection fund.

“We should ask ourselves if a better and more effective answer to the issues that have surfaced in the last few months lies in manager regulation, including higher capital requirements,” said Brenda Vince, who is also president of RBC Asset Management. “I can tell you that … personal liability and capital-at-risk can serve as considerable deterrents.”

Vince took over the post of IFIC chair after the sudden departure of Michel Fragasso, the senior vice-president of Norbourg Asset Management who resigned when Quebec regulators began investigating his firm.

An auditor for nearly 20 years, Vince said the industry suffers from the perception that it lacks concern for its clients. But she questioned the wisdom of an investor protection fund, which would force the entire industry to “pay for the sins” of a very few unscrupulous managers.

She also called on IFIC members to take a more active role in investor education, and to help address public confusion between IFIC and the MFDA.

In his speech, outgoing president Tom Hockin pointed out that not only did the investing public need help in understanding the industry, but that IFIC needs to work with the federal government to explain the industry’s needs.

“Don’t assume Finance and CRA know everything. Government can be overwhelming, but the battery cells in them are not. Be willing to sit down and explain in a non-adversarial, non-condescending way,” Hockin said. “Don’t just argue and advocate with Ottawa, but do the research they need and you can succeed.”

Hockin identified two problems that still face the Canadian investment industry, the low savings rate and taxation.

While many Canadians are “feeling wealthier” thanks to rising real estate values and the equity holdings in their mutual funds, this acquired wealth has been characterized as “passive savings.” Canadians are not actually setting aside a portion of their earnings, but on relying on rising markets alone to increase their net worth.

While mutual funds remain popular investments for those with under $100,000 in assets, studies by the Bank of Canada and CIBC World Markets indicate that many people under the age of 50 are saving virtually nothing for the future.

“We must continue to research this demographic to see if we should be doing more to build trust in and appeal for mutual funds for those in the 25 to 50 age group,” Hockin said. “On a larger canvas we must urge the federal government to recognize this worrisome trend of less active savings for those who are 50 years of age and younger in this country.”

Realizing that this issue could be too complex to resolve overnight, Hockin called on Ottawa to correct what he considers the single greatest federal problem in the investment industry: GST on mutual funds.

In a panel discussion Hockin found support from Assante chairman and CEO, Joe Canavan.

“The one thing I would like to see more than anything, on behalf of our investors, is get rid of the GST on mutual funds,” Canavan said. “What kind of ridiculous tax is this? It’s a consumption tax and a mutual fund is not a consumable product, it’s an investment vehicle looking out for people’s futures.”

Canavan estimates that the fund industry collects between $750 million and $1 billion in GST for the federal government every year.

“I just don’t understand why we are taxing — on an annual basis, not just when you buy it — people’s retirement savings,” he said.

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

(09/29/05)

Steven Lamb