The future of DSC fees is now unclearSeptember 25, 2018
In our industry, there are always surprises. Although we were all expecting last week’s Canadian Securities Administrators’ proposals to ban DSC fees and trailing commissions on do-it-yourself (DIY) accounts, we doubt that anyone was expecting the provincial government’s reaction.
Many in industry believe that DSC fees are past their best-before date – that they were a useful tool when first introduced, but that they are not really necessary in 2018. Some would say that, even if there is a case to be made for them, they are more trouble than they’re worth. Both regulators and firms’ Compliance departments are on the lookout for abuses of DSC, given the lack of meaningful transparency to investors and the well-publicized situations of inappropriate uses of DSC funds.
Trailing commissions on DIY accounts are under fire in any event. Class action suits have been launched against a couple of the banks for charging trailing commissions that purportedly pay for advice that is not given (and not allowed to be given) on a DIY account.
Yet before many of us were even aware that the CSA proposals had been released, the Ontario government weighed in to announce that they are not supportive of the proposals “as currently drafted”. Their comments appear directed to the DSC ban, and it’s not clear what they feel about trailing commissions on DIY accounts.
It’s very unclear what all of this means – either for these proposals or more broadly for policy-making in Ontario (and Canada). The Ontario Securities Commission is a significant player in the CSA, and the head offices of most Canadian mutual fund firms and dealers are located in Ontario. The OSC needs the Ontario government’s blessing for any regulatory changes, and it’s obvious that won’t be coming for these proposals. It would seem unlikely that the CSA would proceed without Ontario and the OSC on board.
In addition, while some organizations have welcomed the resuscitation of DSC fees, others have already moved to eliminate them – either in advance of the expected regulatory changes, or because they feel it is best for their clients.
Just when we finally thought we had clarity on what was happening with DSC fees, everything is up in the air again. Never a dull moment!