Insights and Market Perspectives

Regulation must support – not stifle – choice and innovation

Author: Blake C. Goldring

September 19, 2018

Last week, the Canadian Securities Administrators (CSA) published for comment proposed amendments to mutual fund sales practices including policy changes that would prohibit investment fund managers from paying upfront sales commissions to dealers, likely to result in the discontinuation of all forms of the deferred sales charge option. When consumed in combination with the broader scope of Client Focused Reforms and lengthy Companion policy, the policy change proposals are significant in scope and the precise roots of underlying issues they aim to address can be difficult to decipher.

The CSA continues to progress an agenda that revives the notion that Canadian investors are ill-served in the current market structure. Yet, there is little evidence to suggest that Canadian investors are either harmed or even concerned about the status quo.

At AGF, we acknowledge and appreciate that the CSA’s mandate toward the protection of investors is of the utmost importance, and that the continued safeguarding of investors is a paramount standard for the investment fund industry to observe and be regulated within.

We believe it is also important for regulators to resist the urge to impose solutions if problems do not exist. It can be a tough challenge, though crucial given the disruption and cost that unneeded regulation can cause.

In response to the proposed policy initiatives, our industry has already begun to see changes that will result in increasingly limited investment options available to investors and the potential for investors to be left without access to the financial advice model of their choice. The proposed policy initiatives related to “know your product” in particular will have the unintended consequence of narrowing the product set available to investors potentially resulting in limited competition and discouraging innovation from manufacturers.

In reaction to the CSA’s announcement on September 13th, Ontario’s Minister of Finance, the Honourable Vic Fedeli, issued a statement indicating that the Ontario government does not agree with the proposals put forward as currently drafted and that they would work to explore other potential alternatives to ensure “fair, efficient, capital markets and strong investor protections”.

AGF agrees strongly with the need to continue providing advisors and their clients with choice and ensuring that any regulatory changes do not infringe on people’s access to the advice model they want, which may be digital but research shows more often than not, is human. The continuation of current industry compensation models would demonstrate a recognition of the value of advice for multiple investor types and choice of compensation models that reflect the myriad of investors that are serviced by advisors.

As we have previously stated, we believe regular debate and consultation are a critical part of healthy capital markets. It’s a process that tests assumptions and ensures that regulations and oversight are in sync with change and advances.

We also stress strongly a need for surety, simplicity and transparency of our regulatory environment so as not to stifle innovation. The clarity and rigor of rules and standards are all the more essential at a time of uncertainty and volatility in capital markets.

As a long-standing participant in the Canadian financial services industry, we will continue to be an advocate for sound regulatory changes that are grounded in the needs of all investors. All proposed changes, however, should be coordinated in an organic way, with a view to limiting unintended consequences. We believe all Canadian investors should have access to the advice model of their choice and the flexibility to choose the right compensation model as agreed to between the investor and their advisor through open and transparent dialogue.

 

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

© 2018 AGF Management Limited. All rights reserved.

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