(February 23, 2005) The foreign content limit elimination left many industry association representatives with the same question: What’s going to happen to all those clone funds that were created to get around the foreign content restrictions?

"I don’t know what the fund companies are going to do with all those clone funds now that they’re not needed," said David Burnie, a CFP with Ryan Lamontagne in Ottawa who spoke on behalf of the Financial Planners Standards Council (FPSC). "It’s going to cost the fund companies a few bucks to wind those things down – although it is good for investors to not have the constraints."

IDA president and CEO Joe Oliver agreed. "There will no longer be a need for these artificial constructs that were designed to get around the rule," he said. "It provides flexibility." He added the strong Canadian dollar was part of the reason budget writers felt they could propose an immediate and complete removal of the restriction.

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If the loonie had been weak, noted Al Nagy, a CFP with Investors Group in Edmonton, the restriction might not have been lifted for fear too much investment money would leave the country. But in light of the strong currency and recent solid performance by Canadian equities, federal planners were confident investors would continue to buy Canada.

"It represents a great opportunity for clients to review their financial plans," said Nagy, who also spoke on behalf of FPSC. "The caution is: don’t go nuts. You still want to avoid any currency risk."

Canada’s largest association of advisors, Advocis, said it’s pleased with a number of budget provisions. "We’re glad to see the federal government further investment planning for Canadians by increasing RRSP limits and the personal income tax exemption," said Advocis president and CEO Steve Howard. "The elimination of the foreign content limit will open up global market opportunities," he added.

Oliver called the RRSP increase a step in the right direction, since it outpaces the rate of inflation. "It allows Canadians to save for their retirements, which is important because the amounts they’re getting from the government won’t be enough to let them maintain their lifestyles," he said. "The more self-sufficient retirees are, the better."

Nagy, however, noted the increase wouldn’t be of much help to anyone outside the higher income brackets. "It’s a bit of a targeted opportunity," he said. "You contribute 18% of the previous-year’s earned income, so you’d have to be making $122,000 in 2009 to take advantage of this." He added that some retirement savers will do better than others, depending on how high the marginal rates are in the provinces where they reside.

Oliver, meanwhile, was encouraged by the use of the budget document to call for a meeting at which provincial leaders will discuss the efficiency of securities industry regulation. "They’re clearly putting the provinces on notice that they want some significant improvement by year end, and they’re leaving open what they’ll do if they don’t get it," he said. "They are very serious about getting substantive improvements in the regulatory structure. It’s a robust signal that they want to accomplish something significant in the short term."

Advocis did not make any pre-budget submissions this year but on balance, Howard said the association applauds the government. "We look forward to participating in the government’s stated intention of reviewing legislation governing financial institutions to promote efficiency and improve consumer protection," he said.

The Canadian Bankers Association also spoke out in support of the regulatory review. "We are very supportive of the government’s initiative to improve securities regulation," said association president and CEO Raymond Protti.

Filed by Philip Porado, Advisor’s Edge Philip.porado@advisor.rogers.com, with files from Darin Diehl.

(02/23/05)



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