Reducing regulation for fund issuers can help advisors and clients, industry says

December 13, 2019 | Last updated on December 13, 2019
4 min read
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Reducing the regulatory burden for fund companies doesn’t mean communication with advisors and clients must suffer, industry associations said in regulatory submissions.

In September, the Canadian Securities Administrators (CSA) proposed changes to reduce the regulatory burden on investment fund issuers. The proposals aim to eliminate redundant disclosure and documents, provide certain fund information online and codify existing exemptive relief. The comment period for the proposals ended on Wednesday.

Advocis said it was in favour of requiring investment funds to provide access to regulatory disclosure through a designated website. Such disclosure “enhances investor protection and aligns with modern service expectations,” it said.

Up-to-date online disclosure would also help advisors ensure that disclosure provided to clients reflects the most current information, it said.

In its submission, the Portfolio Management Association of Canada (PMAC) also supported the proposal but said it’s unclear whether client website access would meet a fund’s disclosure delivery requirements.

Other commenters also highlighted disclosure delivery, including Franklin Templeton Investments, AGF Investments, Vanguard Investments Canada and Mackenzie Investments.

Mackenzie said in its submission that it spends about $370,000 annually printing and mailing financial statements and management reports of fund performance, while investors’ opt-in rate is only 1.2%. An “access equals delivery” model for these documents would not only reduce regulatory burden but also have a positive environmental impact, Mackenzie said.

However, fintech and proxy-services provider Broadridge Financial Solutions said in its submission that such a model might reduce investor engagement with disclosure information. Thus, it suggested disclosure be pushed directly to investors. IFIC also suggested in its submission that regulators consider which fund information posted online is pushed to investors versus pulled.

Read: IFIC asks CSA to reconsider fund disclosure rules

Investor communication is an ongoing concern as the regulatory burden is reduced. The CSA said it plans to develop further proposals over the long term on investor communication methods, which Advocis highlighted and supported in its submission.

Advisors and planners are “on the front line of investor outreach, often being the face of the entire financial services sector to the client, and play a key role in delivering effective disclosure on behalf of investment fund issuers,” Advocis said.

The association also supported proposals for exemptive relief from Fund Facts delivery requirements for purchases made under model portfolio products and portfolio rebalancing services, as well as within automatic switch programs.

“After the initial enrolment in these programs, investors are not making new investment decisions with subsequent purchases,” Advocis said. “[A]n exemption from delivery requirements will provide a meaningful reduction in regulatory burden without an impact on investor protection.”

However, Advocis noted that exemptions related to delivery requirements within dealer model portfolio programs should be reconsidered where discretionary trading is permitted. This may be of “particular relevance,” it said, if the Mutual Fund Dealers Association receives CSA approval to implement proposed amendments to rebalance clients’ model portfolios.

Advocis also supported CSA’s proposal to allow a mutual fund to have a consolidated Fund Facts document of all its classes or series, where they differ only in fees. “Consolidation would allow investors to identify other series and classes that may be available to them and more effectively assess the impact of fees,” it said.

It also supported the proposal to conform the Fund Facts to certain disclosure required by the ETF Facts document. “Mutual fund disclosure requirements and ETF disclosure requirements should be harmonized where practicable, as this aligns with client expectations and better facilitates the comparison of products,” Advocis said.

Title regulation was highlighted as part of reducing regulation, with Advocis recommending that CSA lend its support to initiatives in Ontario and Saskatchewan to regulate “financial planner” and “financial advisor.”

“Title protection can provide a burden reduction benefit for both regulators and issuers, as elevating the professionalism of investor-facing intermediaries can result in better KYC, KYP, and suitability outcomes, improved handling of conflicts of interest, and can provide additional conduct oversight through a credentialing body’s code of conduct, as well as investigations and disciplinary process,” Advocis said.

Among PMAC’s recommendations was that the regulators not create new requirements for pooled funds as they codify existing exemptive relief. Proposed amendments could create new requirements, adding cost and burden, PMAC said.

Investors would subsequently be negatively affected. “Pooled funds offer Canadians access to diverse asset classes on a cost-effective basis,” PMAC said, noting that these funds are mostly available through employee-sponsored defined-contribution pension plans. Canadians “realize economies of scale through pooling investments and sharing costs,” it said.

As such, the association said it wants to ensure balance is achieved between regulatory burden and investor protection “to maintain the efficiency and utility” of pooled funds.

All comment letters to the CSA on its proposals to reduce the regulatory burden on investment fund issuers can be found online.