Mutual Fund Fee Research - Ontario Securities Commission

Jun 11, 2015 - determination of whether to effect certain policy changes. We remind ...... Home market bias: Preference for buying investments coming from the ...
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On December 13, 2012, the Canadian Securities Administrators (CSA) published CSA Discussion Paper and Request for Comment 81-407 Mutual Fund Fees (Paper) which identified potential investor protection and fairness issues that may arise from Canada’s current mutual fund fee structure. In particular, the Paper examined how embedded advisor compensation and other forms of tied compensation could give rise to actual or perceived conflicts of interests. Following comments received on the Paper, the CSA conducted extensive stakeholder consultations, including a public roundtable on June 7, 2013, and discussion forums in the summer and fall of 2013. As a result of feedback received during the consultations, the CSA decided to obtain and publish independent research to assist in determining whether regulatory action is needed. Specifically, the CSA commissioned independent third party research in two main areas: 1. Researchers, using data sourced directly from Canadian investment fund managers, would evaluate the extent, if any, to which sales and trailing commissions influence mutual fund sales. 2. Researchers would conduct a literature review to evaluate the extent, if any, to which the use of fee-based vs. commissionbased compensation changes the nature of advice and investment outcomes over the long term. Following a request for proposals by the CSA, the Brondesbury Group was retained to conduct the second piece of research. Brondesbury has now completed their work and their findings are set out in the enclosed Mutual Fund Fees Research report. This research, together with the comments received during the previous consultation period and the forthcoming research into whether tied forms of compensation influence mutual fund sales, are intended to be among the inputs that will be factored into the CSA’s determination of whether to effect certain policy changes. We remind readers that the views and opinions expressed in the enclosed report are those of the authors and do not necessarily represent the views of the CSA.

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MUTUAL FUNDS FEE RESEARCH – OSC (SPRING 2015)

Contents Executive Summary..................................................................................................................................................................................... 6 1.

Introduction ......................................................................................................................................................................................... 9

2.

Impact of Compensation – Investment Returns ................................................................................................................................ 13 2.1

Background .................................................................................................................................................................................. 13

2.2

Findings ........................................................................................................................................................................................ 14

2.3 Discussion of Findings ..................................................................................................................................................................... 19 2.3.1

Technical Issues .................................................................................................................................................................... 19

2.3.2

Discussion: Impact of compensation on ROI ........................................................................................................................ 20

2.4 3.

References ................................................................................................................................................................................... 22

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