Banks and regulators alike are under fire from investor advocacy group the Canadian Foundation for Advancement of Investor Rights (FAIR Canada) over the move by several bank-owned dealers to stop selling third-party mutual funds.
In an open letter, FAIR Canada criticized three of the big banks — RBC, TD Bank and CIBC — for curtailing branch-based sales of third-party funds in response to regulatory reforms that were designed to improve the industry’s treatment of investors.
“Their decision is deeply disappointing,” the group said in its letter. “These banks are flying in the face of the spirit of the client-focused reforms. By limiting customer choices in an apparent attempt to reduce their know-your-product compliance obligations, they are putting their own interests ahead of their clients’ interests.”
FAIR said the move will harm investors by reducing choice and potentially adding cost to customers, who may switch banks in the future.
It also warned the move could set the stage for even greater curbs for independent products. While the banks’ full-service dealers and discount brokerage arms aren’t yet affected, FAIR suggested they could be: “If this move by the three big banks goes unchallenged, they may decide to limit the third-party investment choices of even more segments of their customers.”
The group also said the banks’ actions raise questions about whether the regulators’ efforts to protect investors are adequate or if tougher conduct standards (such as a best interest standard) are needed.
Further, it questioned whether branch-based advisors should be allowed to use the “advisor” title when they sell only proprietary funds, and it suggested that industry proficiency requirements need a boost if fund reps aren’t capable of evaluating a wide range of products.
“Without a change of heart by the banks or more intervention by regulators, this development erodes choice and is damaging to Canadian investors,” FAIR concluded.
“Yet again, retail investors seem to be nothing more than collateral damage in the ongoing fight between industry’s desire to keep regulatory costs as low as possible and regulators’ efforts to craft the rules needed to protect investors,” it said.