Investor Presentaiton

3. ISSUES IN THE MUTUAL FUNDS SECTOR Below we will mainly cover the issues that the Committee has elected to broach with regard to mutual funds. However, the Committee is aware that any regulatory changes implemented to correct these weaknesses would have potential effects on other similar financial products. Thus, the Committee believes that should the regulatory framework governing mutual funds change, so should that aimed at the other investment products. These products should be subject to equivalent rules so that the regulation does not introduce distortions in the products offered or in consumers' choices. This way, investors can base their investment choices on comparable standards. 3.1. Governance 3.1.1 Plurality of functions In the mutual fund industry, individuals can act as fund managers, promoters, fiduciaries, and principal distributors through the entities that they control. The situation also arises in large institutions like banks and credit unions, which nonetheless have different management teams. Though not specific to Québec, plurality of functions seems to be practiced for reasons of efficiency here, both for economic and administrative purposes. Actually, the fact that mutual fund managers perform several duties, either directly or through other members of their groups, reduces operating costs and administrative delays. This is because managers are quite often qualified to manage the various operations of a mutual fund. However, a growing number of observers are advocating a strict separation of roles for those operating in the mutual fund sector owing to the potential risks of losses for investors. 7 8 According to Autorité des marchés financiers, nearly 85% of mutual fund managers in Ontario are also registered as financial advisors or are members of a group registered as such. The plurality of functions carries certain risks according to Autorité des marchés financiers. These include the inability to compute the net asset value correctly or at an opportune time, the inability to draw up financial statements and reports correctly or at an opportune time, and conflicts of interest between the manager and investors, such as for management fees for example. Consultation paper Page 9

View entire presentation