Fees for mutual funds under review

Canadian securities regulators are looking into whether changes should be made to the way fees are charged on investment funds.

A discussion paper released Thursday by the Canadian Securities Administrators says research shows that investors have a limited understanding of the different kinds of mutual fund costs. In addition, there can be conflicts of interest inherent in mutual fund sales that may not be addressed through other regulatory reforms.

The umbrella organization for Canada’s provincial and territorial securities regulators drew no conclusions about fees, but the discussion paper is expected to kick off debate about potentially capping or removing trailer fees that are often misunderstood by investors who don’t understand the true cost of their investments.

“The gradual shift in the Canadian mutual fund market away from transaction-based sales commissions paid directly by investors to a greater reliance by advisers on trailing commissions and sales commissions funded from mutual fund management fees seems to have led many of today’s investors to mistakenly believe there is no cost to purchasing or owning a mutual fund,” the CSA paper said.

“Consequently, investors have limited understanding of the different kinds of mutual fund costs.”

The CSA noted that even if an investor is aware of the fees, expressing displeasure with increases can be tricky.

The CSA is asking for feedback on the paper. The comment period is open until April 12.