Mutual fund sales practices face fresh scrutiny

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The CSA is surveying the investment fund managers it identified as having “principal distributors” — defined as funds that are sold exclusively by a particular dealer — to seek information about these arrangements.

“The information obtained will provide a better understanding of sales practices and distribution structures that mutual funds and registrants are using,” the CSA said in a release.

The information will help the regulators decide whether they need to make changes to sales practices rules or other requirements, particularly “in light of the CSA’s recent work in developing its client-focused reforms.”

Those reforms, which fully came into effect at the end of 2021, sought to address long-standing investor protection concerns, including conflicts of interest.

In response to the reforms, some firms narrowed their product shelves to avoid the added work the CFRs required, which sparked concerns about the implications for investors.

In response to a recommendation from a government task force, and at the behest of the provincial government, the Ontario Securities Commission carried out a review of the bank-owned dealers’ proprietary product shelves earlier this year alongside an inquiry into tied selling in the investment banking business.

The results of that review, which were delivered to the government in the spring, have not been publicly released.

Now, the CSA is following up with its own inquiry into the state of proprietary mutual fund distribution.

“The CSA is committed to taking the necessary regulatory steps towards enhanced investor protection, and to providing investors with the information they need to help make wise investment decisions,” said Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission, in a release.

“Ensuring the CSA has the information needed to determine whether further investment fund sales practice regulatory reform is needed to put investors interests first is an important piece of this work.”

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