Investors looking at their options during RRSP season should also consider how much those options may cost.
Investor advocacy group FAIR Canada has emphasized the importance of transparency in investment pricing, and how small cost differences can amplify over multiple years. Its home page includes a number of videos to help investors understand the costs of some investment choices.
The importance of understanding what investors pay in fees is underscored by upcoming changes that result in lower costs to purchase and own mutual funds.
After many years of debate, the Canadian Securities Administrators (CSA) announced in late December they would ban both trailing commissions paid by mutual fund companies to discount brokers and payment of deferred service charges (DSC) and associated redemption fees. Trailing commissions are amounts paid out to dealers from each mutual fund’s pooled assets as sales compensation in return for ongoing advice. Discount brokers only execute orders and do not provide advice. Deferred service charges are amounts paid by some investors who wish to sell funds within a few years of their purchase, if they have not paid any “up front” sales commissions. The DSC ban does not apply in Ontario. Those changes would reduce the fees paid by mutual fund investors.
The effective date of those changes is still unknown. The CSA indicated it was planning to eliminate DSC in early 2020, while the ban on trailers for discount brokers would follow later in the year. Both changes would likely be phased in over multiple years.
Ontario has balked at the DSC ban, because discontinuing a payment option would reduce access to mutual funds for smaller investors. However, the chair of the Investor Advisory Panel (IAP), the Ontario Securities Commission’s (OSC) independent investor advocacy group, said he expects all mutual fund dealers to eventually abandon the practice because of liability risk.
“DSC funds are now a pariah product,” IAP chair Neil Gross told industry publication Investment Executive. “Use has been largely impossible to justify ever since many mutual funds became purchasable on a zero upfront commission basis.”
Both IAP and consumer advocacy group FAIR Canada have supported a ban on trailer fees and DSC, as well as all other “embedded” fees. FAIR Canada senior policy counsel Douglas Walker said the DSC ban would be “an important step forward in simplifying the mutual fund fee structures that consumers simply do not understand.”
The Bank has been gathering data for the survey since late 2014, but published its results for the first time, reporting its Q4 2019 numbers. Those figures show Canadians expect their wage growth to continue to lag inflation in 2020, and their own income growth to continue to lag their spending growth.
Canadians were surveyed in November 2019. The median response for both wage growth and income growth in 2020 was 2.0 per cent. The median forecast for inflation was 2.2 per cent, and the median forecast for spending growth was 3.36 per cent.
The historical figures published show that except for single quarters in 2017, consumers have forecast wage growth to be below inflation, and income growth to be below spending growth for the entire five years of forecast data.
The survey also displayed expectations of volatility in the labour market, with 10.4 per cent saying they thought they would lose their job in the next year, and 17.9 per cent set to leave their job. Both figures are the highest in the period studied. Survey participants forecast a median house price growth of 4.4 per cent in 2020.
The survey was first announced in 2014 as a complement to the Business Outlook Survey that the Bank of Canada also releases quarterly. It is based on a nationwide survey of about 1,000 households by an external polling firm.
Canadian consumers will be able to use debit cards on trains, buses and planes after the implementation of new rules announced by Payments Canada.
Under current rules, merchants must have consistent online connectivity to accept debit payments. So while Canadians are a “global leader” in debit card use, this has made debit impractical for certain transactions, particularly that involve mobility such as bus fares and in-flight purchases. Most airlines and VIA Rail now restrict on-board purchases to credit, and don't take debit payments. (Many have also disallowed cash.)
In its release, Payments Canada specifically noted the new Rule E5 would appeal to "public transit operators, whose business models require quick authorization." The Rule offers delayed authorization, removing the requirement for immediate online connectivity, and should broaden point-of-sale debit card acceptance. In the transit scenario, operators can allow passengers to pay and ride without payment authorization. The rule should also enable debit payment at parking meters and vending machines.
While the change by Payments Canada will permit the transactions, there was no information on how quickly merchants and other payment participants would implement any changes.
Fewer Canadians are carrying cash, and debit cards are used for more transactions than cash, according to Payment Canada’s annual Canadian Payments Methods and Trends Report. More everyday lower value transactions are also using debit.
Consumers Council of Canada President Don Mercer said Canadians “stand to benefit from new secure ways to pay. However, as with all payments choices, consumers should become informed on the terms and conditions before choosing any method of payment.”
Ontario new home buyers will see some reforms in the way homes are regulated and warrantied in late 2020, but the scope and many of the specifics of those changes have not been announced or put out for consultation.
In early December, the government announced it was doubling down on governance reform in the new home sector. It announced its intent to create a new regulator the Home Construction Regulatory Authority to take over licensing of new home builders and vendors in the fall of 2020. This would require builders to meet the licensing requirements to legally build new homes and gain access to having their warranty guaranteed by Tarion Warranty Corporation. It's still refining the related legislation, for example through Bill 159, Rebuilding Consumer Confidence Act, 2019, currently being considered by the Ontario Legislature's Standing Committee on Justice Policy.
Currently, Tarion must accept builders of new homes and receive their payments related to warranty protection in order to legally sell a new home in Ontario. Home Construction Regulatory Authority (HCRA), once all related laws related to its creation are proclaimed and new related regulations issued, will control licensing of builders of new homes.
Ontario Government and Consumer Services Minister Lisa Thompson announced that changes to regulation of the new home building sector were going to be “a complete overhaul”.
Recently Tarion’s CEO retired and its chair resigned. Its board is to be reduced from 16 to 12, no more than a third of which will represent homebuilders and vendors, and at least one board member will be required to have some knowledge of dispute resolution and consumer protection.
HCRA will have its own governance structure.
A recently released auditor general review noted Tarion's warranty claims processes were difficult and senior management was rewarded for minimizing payouts to homeowners, and builders with poor warranty records nonetheless continued to be approved for the warranty backstop.
The government pledged to improve dispute resolution and provide more authority to scrutinize builder applications and inspect homes before the consumer takes occupancy. HCRA's interim CEO Tim Hadwen has started consultations with builders, consumers and other industry representatives concerning authority operations. Ontario's Ministry of Government and Consumer Services is drafting regulations for the related Acts.
Consumer groups have pushed for more durable, resilient housing that gets built as promised and in compliance with building codes and standards and have wanted more emphasis on inspection to ensure successful outcomes for home owners.
While Tarion and HCRA and other sector relevant authorities, like Technical Standards and Safety Authority, Electrical Safety Authority, and Real Estate Council of Ontario, report to Ministry of Government and Consumer Services, Ontario’s building code and the governance of municipal inspection is under the control of the Ministry of Municipal Affairs and Housing.
And while the responsibilities are shuffling, the government has not announced any specific changes to requirements of the warranty itself, to either diminish or improve the coverage or reform of the claims process to make it easier for new home owners.
The Financial Consumer Agency of Canada (FCAC) review into banks’ external complaint-handling has been submitted to the government and should become public in early 2020.
FCAC was asked to review banks’ complaints-handling processes and the effectiveness of the external complaints bodies by Finance Minister Bill Morneau in the 2018 Fall Economic Statement. In a recently published article in the Financial Post, new FCAC commissioner Judith Robertson confirmed the report’s completion and its early 2020 release.
Canadian banks have been allowed to choose third-party firms to provide dispute resolution rather than require them to use the Ombudsman for Banking Services and Investments, which was originally established to serve that purpose. Royal Bank (2008), TD Bank (2011) and Scotiabank (2018) have all opted to use a different dispute resolution provider approved by FCAC.
Consumers Council of Canada has published a number of papers on the issue, including a discussion paper in 2018 that favoured making OBSI a single dispute resolution provider, and called the policy that allowed firms to select their own arbiters “a flawed policy that has led to an uneven playing field among banking competitors and between banks and consumers.” In a release from that year, Council chairman Don Mercer said “the federal government needs to protect bank customers by mandating a single impartial, non-profit external complaints body – a right that should be restored to them promptly.” An early 2012 publication adds additional historical detail.
Robertson also told the Financial Post that FCAC is looking forward to working with the new Canadian Consumer Advocate, whenever details of that office emerge. That position was an element in the Liberals’ fall election campaign platform and included in the list of priorities given to Minister of Innovation, Science and Industry Navdeep Bains in mandate letters released December 13.
While that mandate letter said the new authority would “ensure a single point of contact for people who need help with federally regulated banking, telecom or transportation-related complaints,” Robertson indicated that “it’s understood that the FCAC has the regulatory responsibility over banks with regard to complaint handling, so we will continue our efforts there.”