Four years after the release of her landmark 1995 report on mutual fund regulation, Glorianne Stromberg, a former commisioner of the Ontario Securities Commission, has delivered another stern critique of the state of the industry.
In a report prepared for the consumer affairs branch of the federal Industry department, Stromberg condemns regulatory fragmentation, conflicts of interest among salespeople, ineffective disclosure, and the lack of investor education.
The newly released report echoes many of the ideas that Stromberg, Canada's best known advocate for fund investors, has been promoting for years. But this time, there appears to be less momentum to translate her views into action.
The federal Office of Consumer Affairs has no direct involvement in securities regulation, and is emphasizing the report's educational aspects. It said it commissioned the report to "stimulate discussion" on how to improve protection for fund investors.
By contrast, the original 1995 Stromberg report was aimed at prompting ameliorative action and was commissioned by the Canadian Securities Administrators, the association representing provincial regulators across the country. The report helped spur numerous regulatory and industry initiatives. These included a tough sales code, the establishment of the self-regulatory Mutual Fund Dealers Association and the development of a fund summary disclosure document and an ethics code for fund managers.
In many respects, Stromberg's 1999 sequel reiterates the author's Utopian vision for consumer protection. For instance, in her ideal world, a common regulatory regime would oversee all types of investment products. This super-regulator would be responsible not only for mutual funds but also segregated funds sold by insurance agents, index linked deposits sold at bank branches and other securities such as stocks and bonds. The current regulatory patchwork for these various investments has resulted in "conflicting or inconsistent requirements" in some cases, and regulatory gaps in others, says Stromberg.
Much of Stromberg's new report elaborates on her recommendations of how disclosure could be made more effective. She said common standards should be in place for all types of investment products, and there should be a requirement that prospectuses be delivered to consumers before they decide to invest.
Stromberg thinks much more information can be provided in the documents that fund buyers already receive. She said confirmation of purchase forms, for instance, could be expanded to reveal how much it would cost to redeem a deferred load fund, depending on how long it was held, and how much the broker was paid by the fund company.
"People don't understand the fees and charges," said Stromberg in an interview. "They don't even understand what they're paying by way of commission."
Account statements could better inform customers about how their investments are growing, says Stromberg.
Annual reports should include management discussion and analysis of the fund's performance to help investors decide whether it is meeting their needs, said Stromberg.
"People will learn there is more to achieving their goals than just choosing yesterday's high flier," if the reports are done properly, Stromberg said.
Stromberg is shocked by what she sees as a state of financial illiteracy afflicting most Canadians. She cited an urgent need for better, and much earlier, financial education that could begin as early as junior kindergarten.
Stromberg's other major recommendations include simplification of the registration and licensing requirements for salespeople, and the formation of a "non-partisan" standards body to set rigorous proficiency requirements.
Initial industry reaction to Stromberg's report was subdued. The Investment Funds Institute of Canada (IFIC) said it welcomed the report but declined to comment on it until its members had a chance to study it.
Stromberg's professional plans are unclear. She resigned, effective Dec. 31, from her position as a part-time commissioner with the Ontario Securities Commission and said she expected to continue to be involved in consumer protection issues.
TD is bank pioneer in segregated funds
Toronto Dominion Bank has become the first Canadian bank to offer its own family of segregated funds which carry death benefits and other insurance features and are sold by registered life insurance agents. The new fund family combines the efforts of two of the bank's subsidiaries: fund manager TD Asset Management and Toronto Dominion Life Insurance.
A total of 16 funds are being offered, of which eight are portfolios of funds.
All of the new products feature guarantees of 100 percent of the original contributions for investments held for at least 10 years.
The funds are being sold by licensed insurance agents of TD Life, the bank's brokerage unit TD Evergreen and through TD's investment center for its proprietary funds. They are also available via the Internet.