Industry criticism adds to MFDA investor protection fund delay

(March 31, 2003) The Mutual Fund Dealers Association has rolled back implementation of its investor protection fund, scheduled for July 1, as it prepares a response to a number of negative industry comments about the proposal.

The establishment of an Investor Protection Corporation (IPC) was mandated by the country’s securities regulators as a condition of the MFDA’s start-up. The IPC would begin with a $5 million fund, providing $100,000 in coverage. The proposals were released for comment last year and the Ontario Securities Commission recently published five responses on its Web site.

“The dealers are fully supportive of the goal of client protection, but they believe that better alternatives need to be considered, including alternatives that provide higher levels of protection to clients of MFDA members as well as increased efficiencies,” says Stikeman Elliott lawyer Simon Romano in his submission. “The proposal is seriously flawed and needs to be reconsidered.”

“The introduction of another fee for mutual fund dealers at this time, in addition to the MFDA fees currently imposed, is unreasonable given the lack of benefits afforded our clients,” says BMO Mutual Funds president Edgar Legzdins.

Tom Rice, chair of Rice Financial, says he’d like to see the MFDA give the IPC proposal more thought before proceeding. “Let’s be cautious and know what we are doing,” he wrote. “Another examination of the facts would not hurt.”

There’s also some opposition to the IPC from within the MFDA board. Tim Calibaba, president of TWC Financial and MFDA board member, says he’s not sure the fund is required. “On the mutual fund dealers side, we have capital requirement, reporting requirements, bonding and insurance,” he said in a recent interview. “All dealers have to have that to stay in business. So this investor protection plan is really another layer of insurance that really isn’t necessary.”

Don Leslie, former president of the Canadian Investor Protection Fund, is leading the MFDA’s IPC effort. He’s currently preparing a response to the submissions and, although he wouldn’t provide details, suggested that many of the concerns would be addressed. Nevertheless, he admits that the July 1, 2003, implementation deadline is out the window. “We’re probably looking at the end of September at the earliest, possibly the end of the year,” he told Advisor.ca.

Advisors have also expressed concerns about the increased fees that accompany new regulatory initiatives, such as the IPC and the National Registration Database. Leslie is sympathetic. “I’d like to see if we can’t keep the [IPC] fees down,” he says. “If we go a year or two and we don’t have any claims, we can back down on the assessments and build the fund a bit slower.”

What do you think of the MFDA’s investor protection fund? Is it necessary? Share your thoughts in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca