Product labelled ‘toxic’ and a ‘dinosaur’ as CSA leadership is praised
Ontario will eventually buckle under the weight of industry change when it comes to deferred sales charges, according to an investor advocate group.
Kenmar Associates welcomed the Canadian Securities Administrators’ decision to outlaw two types of commissions in some mutual fund purchases. The group praised the move as proof it has the leadership to “simultaneously confront fierce industry lobbying and the Ontario government”.
The CSA will eliminate upfront sales commissions by investment fund organizations to dealers, which will lead to the end of the DSC option and associated redemption fees; and the end of trailing commissions by investment fund organizations to dealers who only execute orders and do not provide advice, such as discount brokers.
In a statement provided to WP, Kenmar said that DSCs are a “toxic product” designed to obtain quick sales and lock in a client for six to seven years.
“There are many much better options available for families saving for life goals. No professional advisor would recommend such a product. In addition, sales of this product have been made to seniors and retirees to their detriment. Eliminating the DSC fund will reduce mutual fund fees overall.
“It was great to see the CSA announce that they are moving on DSCs and trailer commissions to discount brokers. We think this will largely kill DSC sold funds over the next couple of years even without Ontario, maybe except for the smaller mutual fund dealers.
“Primerica is a big supporter of DSCs and it is the basis of their business model. The larger dealers probably will have a serious problem with selling a product that is banned in the rest of the country. The manufacturers will probably start to move away from that option - even Fidelity.
“We expect Ontario - Ford et al - to ultimately buckle. The client-focused reforms will also accelerate the death of this dinosaur. We jokingly refer to such funds as deferred service charge funds.”
