This week, the Canadian Securities Administrators (CSA) published a consultation paper of interest to investors of mutual funds. The paper contained three main proposals:

Prohibiting Deferred Sales Charge and Low Service Charge Loads

Once a staple of the mutual fund industry, many advisors have begun to move away from DSC and LSC, as investment flexibility can be affected. You First has been in the process of transitioning away from DSC and LSC fund loads for the last three years. Note that existing positions held in DSC or LSC funds cannot be moved to Front-End Load (FEL) until the funds have matured.

Related to this proposal, the CSA has signalled that embedded    compensation is here to stay, provided the fund’s embedded load structure is the unlocked FEL with no upfront commission.

Prohibiting Trailing Commissions Sold Via Discount Brokerages

Discount brokerages’ business model is a do-it-yourself investment style, so CSA has proposed that advisor compensation should not be paid for any such investment setups.

Firms and advisors will be able to continue to offer clients mutual funds with trailing commissions, provided certain targeted reforms (point 3 below) are met.

Enhanced Conflict of Interest Scrutiny

As advisors, it is our job to put the client first. The CSA proposes heightened scrutiny as part of targeted reforms to demonstrate that both the fund selection and client recommendation are based on the quality of the mutual fund, without influence from the embedded commission.

The targeted reforms also propose changes to the know-your-client (KYC), know-your-product (KYP) and suitability obligations.

If you have any questions about these proposals and how they might affect your investments, don’t hesitate to contact us.


Sources: Mackenzie Investments,