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.”