Overview and background
The Portfolio Management Association of Canada (PMAC), through its Industry, Regulation & Tax Committee, is pleased to have the opportunity to provide comments on the Canadian Securities Administrators’ (CSA) notice and request for comment on proposed amendments to National Instrument 81-105 – Mutual Fund Sales Practices (NI 81-105) and related consequential amendments, collectively, the Consultation. Capitalized terms used in this letter but not defined here have the same meaning given to them in the Consultation.
PMAC members encompass both large and small portfolio management firms managing total assets in excess of $1.8 trillion for institutional and private client portfolios.
We would like to thank the CSA for the work done by its members to draft the Consultation and for the opportunity to participate in various discussions on the very important proposals in this Consultation.
Focus of PMAC’s submission
PMAC advocates for the highest standard of unbiased portfolio management in the interest of the investors served by our members. In fact, that is PMAC’s mission statement: advancing standards. For this reason, we are consistently supportive of measures that elevate standards in the industry, enhance transparency, improve investor protection and benefit the Canadian capital markets as a whole.
Through consultation with our over 250 investment management firms registered with the CSA as portfolio managers, we understand that only a very small percentage of these firms use sales and trailing commissions to compensate dealers and their representatives for mutual fund sales. While our membership is compensated for the provision of different services through a wide variety of fee models, the most prevalent compensation model is fees charged based on a percentage of an investor’s assets under management. As a result, we believe that other industry associations are better positioned to provide specific feedback on the prohibition of the DSC Option as well as on trailing commissions by order-execution-only dealers.
Consequently, PMAC’s response is primarily focused on aspects of the Consultation regarding the modernization of NI 81-105 and what implications the proposals may have for portfolio managers and their investors, especially with respect to the potential impact on pooled investment funds (pooled funds).
PMAC’s key recommendation
PMAC believes that the imposition of NI 81-105 is not warranted for pooled funds. The use of pooled funds differs fundamentally from retail mutual funds and they should not be treated similarly.
We note that the CSA has not articulated – nor are we aware of – any specific regulatory, market or investor protection concerns arising from the provision of pooled funds to investors that would necessitate the application of NI 81-105 to such funds. To the extent that there are any such concerns, we believe the CSA should explicitly state their nature to enable stakeholders to more effectively respond with suggestions as to their appropriate resolution.
PMAC is concerned that increased costs and regulatory burden on pooled funds could have unintended consequences on the continued ability to offer investors the unique benefits of pooled funds in a cost effective manner. Investor access to pooled funds should not be compromised as a result of an increased regulatory burden in the absence of specific policy concerns.