Canadian regulators consider ban on mutual fund trailer fees

Wed Jun 29, 2016 12:46pm EDT
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TORONTO, June 29 (Reuters) - Canadian securities regulators are considering major changes to the way mutual funds are sold in Canada, possibly banning "trailer fees" and other charges paid to financial advisers selling the products.

The Canadian Securities Administrators, a group of the nation's provincial securities regulators, said on Wednesday that current industry practices raised issues about investor protection that suggested a need to consider change.

Trailer fees, which have already been banned in Britain and Australia, are commissions that mutual fund managers pay financial advisers when they sell the funds to investors.

Consumer groups say the commissions have grown over the years while investors often do not understand them or even know they exist. Previous studies have suggested a link between the payments and sales of mutual funds by financial advisers, despite their higher costs compared with exchange-traded funds.

The CSA, which exists to harmonize regulation of capital markets in Canada, said it would publish a consultation paper on the fees by this fall, followed by a four-month consultation period when affected parties can respond.

The group is considering that the fees be scrapped and that investors pay directly for advice instead.

(Reporting by Matt Scuffham; Editing by Lisa Von Ahn)