OSC roundtable participants predict fees could double

Could CSA’s whitepaper on mutual fund fees lead to Canadian investors paying twice as much for advice?

Depends who you ask, and whether the regulators in play ultimately take action.

Responding to a CSA discussion paper released December 13, the OSC today held a roundtable to take industry input on elimination of trailer fees. Participants on three panels detailed how embedded fees advantage small retail investors, what services trailer fees pay for and whether current disclosure initiatives are sufficient.

“Some suggest fees would come down, but the facts suggest otherwise. The cost of advice will likely increase anywhere from 25% to 150% for the average Canadian investor,” says Peter Intraligi, Invesco Canada president and COO. “When small investors lose that protection [of embedded fees], they’re left to negotiate fees on their own. Those who negotiate pay substantially more than the common 1% trail in a mutual fund.”

Read: CSA to scrutinize mutual fund fees

Advocis CEO Greg Pollock points out trailers pay advisors for ongoing services such as monitoring funds, portfolio balancing, reassessment of risk tolerance and adapting to changing financial goals.

That led OSC commissioner Deborah Leckman to question the fairness of trailer fees, and ask whether small clients actually get the same services as wealthier ones. Pollock asserts yes, over time, and claims an upfront fee wouldn’t properly compensate advisors for their continued help.

Leckman then questioned why OSC wouldn’t respond with minimum service requirements, as also suggested in the CSA paper.

“[A checklist] would in no way guarantee that an advisor’s guidance and judgment is being used to determine the best course of action for the client,” says Pollock. “We just need to be cautious that we just don’t rush to doing checklists and saying it’s all done and I’m good.”

Read: Mutual fund investors need advice

It’s also unlikely regulators will make a decision soon.

Participants did agree on the need for transparency and full disclosure, some suggested the real problem is lack of investor education.

Though mutual fund fees are officially on the OSC radar, this is only the first of more roundtables scheduled for coming months, says Rhonda Goldberg, acting director of OSC investment funds branch.

Meanwhile, OSC Investor Advisory Panel chair Paul Bates says, “Intervention is required because the industry, given its own timetable, may not move as well as it should,” adding a ban on embedded mutual fund fees should happen now.

Read: Show me the money: compensation in focus