Regulatory fees

(July 2, 2003) Ontario’s mutual fund dealers are facing consistently rising regulatory fees amid a tough economic environment, says IFIC. An analysis conducted by IFIC reveals that some fund dealers’ fees will rise more than 50% in 2003, due to several new regulatory initiatives.

Major regulatory costs for fund dealers in Ontario include Ontario Securities Commission (OSC) capital market participation fees, National Registration Database (NRD) fees and MFDA fees.

“Coping with this increase in overall fees has been increasingly difficult for many mutual fund dealers,” IFIC president Tom Hockin said in a letter sent to OSC executive director Charlie Macfarlane last month. “Our dealer members are of the view that they are being made to bear an unmanageable cost burden as a result of insufficient consideration of the collective impact of those fees upon their operations.”

IFIC says a dealer with assets under management of between $225 million and $275 million paid about $40,000 in fees last year. Total projected fees for this year for the same dealer will be nearly $62,000. That increase comes almost entirely from costs associated with the NRD.

On May 30, dealers paid their first NRD annual user fee. A second “fee pull” is scheduled for December 31.

“Our members will have to pay annual NRD fees twice in 2003,” IFIC says, “at a time when our entire industry is experiencing economic difficulties.” The OSC has defended the fees, stating that it is amortizing the cost of developing the NRD over a five-year period.

The MFDA’s start-up costs, funded by dealers, totalled $12 million, IFIC says. “Thousands of Canada’s financial advisors are paying off that debt right now in the form of hundreds of dollars in new fees passed along to us by our firms,” wrote freelance writer Andrew Rickard in a recent article for Advisor.ca on the cost of regulation.

The OSC posted a surplus of more than $30 million last year, IFIC points out. “The OSC has the ability to meaningfully reduce the overall regulatory burden by defraying the start-up costs incurred in the creation of the MFDA,” IFIC adds. “We urge the commission to do so.” The OSC says any surplus it generates goes directly to the provincial government.

IFIC says generally higher regulatory costs have an “increasingly tenuous connection to the actual costs of regulating the industry, particularly our dealer members.” The mutual fund industry association is urging the OSC to review industry costs with the Canadian Securities Administrators and to address mounting cost pressures in the area of regulation.

What do you think of the “unmanageable cost burden” IFIC is talking about? What do you think can and/or should be done about it? How will these increased fees damage your industry? Share your thoughts and opinions in the the Talvest Town Hall on Advisor.ca.

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