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January 2020
FAIR Focus: Is Self Regulation In the Public Interest? / Embedded Commission Reforms / Does "Access Equal Delivery"?

Understanding Your Annual Charges and Other Compensation (what you paid) and Investments Performance (what you made) Statements

January is the month each year when financial institutions will provide their clients with two annual statements. The Annual Investment Performance Statement (what you made) and the Annual Charges and Other Compensation Statement (what you paid).
 
FAIR Canada highly recommends that you read these statements to better determine whether the fees you are paying are good value for the services and investment returns you are getting. If you have questions or concerns, you should raise them with the financial institution(s) that you use for your investments.
 
Background:
The regulations requiring these statements are referred to as Client Relationship Model Phase 2 (CRM2). CRM2 came into effect July 15, 2016. CRM 2 requires financial institutions to provide these statements to their clients to better enable them to judge the value of the investment advice and products or services that they are receiving.
 
Help in Understanding:
To help investors better understand these statements, FAIR Canada has produced "Understanding Your Statements" - a series of short videos explaining what Canadians need to know about the annual investment performance and cost reports.

How Much You Made and What You Paid - FAIR Canada's Video Series to Explain Your New Annual Statements (CRM2)
 
  CRM2 Overview:   Canadian investors will be seeing two new mandatory reports (one on COST and one on PERFORMANCE) from their financial institutions starting July 15th, 2016. This video provides the overview of these reports, with additional videos provided for more in-depth explanations.
 
 CRM2 Charges and Other Compensation: 
Explanation of the new Charges and Other Compensation annual report Canadian investors will receive starting from July 15th, 2016.

  CRM2 Investment Performance Report: A 
How to read the new annual Investment Performance Reports required to be delivered to Canadian investors starting from July 15th, 2016.

  Money-Weighted versus Time-Weighted Rates of Return: 
The difference between Money-Weighted and Time-Weighted rates of return.
 
  Benchmarks and your Investment Portfolio:
 How to evaluate the performance of your investment strategies and portfolios using benchmarks.

  Trailing Commissions on Mutual Funds: 
How mutual trailing commissions work, and the impact of costs on your portfolio over time.

  Deferred Sales Charge (DSC) Mutual Funds:
How Deferred Sales Charge (DSC) mutual funds work, and why there are costs for selling these investments too early.

Is Self-Regulation in the Public Interest?

FAIR Canada welcomes the recent announcement that the Canadian Securities Administrators (CSA) will undertake a review of the regulatory framework of the self-regulatory organizations (SROs) that governs the regulatory mandates of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA). See: https://www.osc.gov.on.ca/en/NewsEvents_nr_20191212_csa-canadian-securities-regulators-announce-review-of-framework-for-self-regulatory-organizations.htm
 
FAIR Canada believes this review is overdue and should include a review of the fundamental approach to how best to regulate Canada's securities markets . What is the appropriate amount of reliance on SROs and how should the CSA address the inherent conflicts of interest between the mandates given to SROs to regulate in the public interest and to promote investor protection while being controlled by and serving the interests of their members (i.e. the dealers). It is FAIR Canada's view that the CSA should examine whether the SRO model of regulation is working, indeed if it is capable of working, to serve the public interest. What is the appropriate role of the statutory securities regulators and what benefit to the public, if any, is served by allowing the securities industry to regulate itself?

CSA Announces Mutual Funds Embedded Commissions Reforms

On December 19, 2019 Canadians received an early Christmas present. The Canadian Securities Administrators (CSA) announced they are proceeding with long awaited reforms to ban trailing commissions paid by mutual fund companies to discount brokers and a ban on the payment of deferred service charges and associated redemption fees. The reforms will be implemented in all jurisdictions with the exception that the ban on deferred service charges will not be applicable in Ontario
 
The intention of these reforms is to end certain practices of the mutual fund industry that have resulted in excessive and unnecessary fees being paid by mutual funds investors in Canada. FAIR Canada has been advocating for these reforms for many years. See the media statement issued by FAIR Canada on December 19 in support of the CSA announcement: https://myemail.constantcontact.com/FAIR-Canada-Newsflash---FAIR-Canada-welcomes-the-CSA-ban-on-embedded-commissions-for-mutual-funds.html?soid=1102284477892&aid=4QkEOv6jjS4
 
For additional background information, see our submissions to the securities regulators from 2013 to 2018 on our website: https://faircanada.ca/fca_submissioncategory/mutual-funds/
 
CSA Announces Consultation to Consider "Access Equals Delivery" for Disclosure Documents

In January, the CSA announced it is undertaking a public consultation to consider whether to change the manner in which companies securities deliver documents to investors containing  of information that is potentially critical to their investment decisions. https://www.osc.gov.on.ca/en/NewsEvents_nr_20200109_csa-announce-consultation-on-an-access-equals-delivery-model-for-public-companies.htm
 
As stated earlier in our submissions to the Ontario Securities Commission on the Regulatory Burden Reduction Initiative (https://faircanada.ca/submissions/osc-regulatory-burden-reduction-comments) , we do not support moving to "access equals delivery" of documents if it means that as long as a person has access he/she is deemed to have received delivery. Investors must be notified that the document is available and how it can be viewed.  
 
"Access equals delivery" shifts the burden from financial institutions and the corporations that issue securities for sale to the public, onto Canadian consumers. Receiving a boiler-plate email that a document is accessible is simply not enough unless the aim is to obfuscate. The delivery of documents to investors can be modernized and costs reduced by delivering documents by email. The proposed approach would require consumers to find documents on outdated and consumer unfriendly systems such as SEDAR, which is currently undergoing a major overhaul that is not due to be completed until 2021.

FAIR Canada in the News
Investment Executive 
January 17, 2020
James Langton
Investor advocates got a surprise gift late last year when the Canadian Securities Administrators (CSA) declared that it will make 2020 the year of the ban on deferred sales charge (DSC) mutual funds. The CSA promises to introduce rule changes this year that will effectively eliminate DSCs by banning the payment of upfront commissions to dealers from fund companies - except in Ontario.

Wealth Professional
January 2. 2020
James Burton
IFIC disappointed with CSA but Vanguard and FAIR Canada support bans on certain commissions. The CSA's announcement that deferred sales charges will be banned across the board except Ontario has been met with opposition from the Investment Funds Institute of Canada trade group.
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