Personal Investor: Ontario pulls back effort to kill hidden investment fees
Ontario’s new Conservative government has just thrown cold water on an effort to eliminate hidden fees on mutual funds.
Finance Minister Vic Fedeli is calling into question an initiative by the Canadian Securities Regulators (CSA) to ban fees for early withdrawals from mutual funds called deferred sales charges (DSC). The fees, also known as back-end loads, can be as high as six per cent of the total investment but gradually fall to zero if the fund is held for over seven years.
Securities regulators and investor advocates have argued against the fee claiming many investors are not aware of the high cost when the fund is purchased. Investment dealers tend to favour DSCs because they receive part of it as a commission from the mutual fund company.
The Ontario government released a statement on the decision, although the reasons for blocking the ban are not entirely clear.
“The CSA and [Ontario Securities Commission’s] proposed amendments result from a process initiated under the previous government and, if implemented, will discontinue a payment option for purchasing mutual funds that has enabled Ontario families and investors to save towards retirement and other financial goals,” the statement reads. “Our government does not agree with this proposal as currently drafted.”
It’s hard to tell where the Ontario government is heading with this, but there are shades of an effort by the Trump administration in the United States to kill Obama-era rules that force investment advisors to put the best interest of their clients first - a requirement known as a fiduciary duty.
Canadians currently pay the highest investment fees in the developed world. Most of those fees are associated with mutual funds, the most popular investment tool for average Canadians. High mutual fund fees have been driving retail investors to low-fee exchange traded funds (ETFs) and robo-advisors.