It's Your Money  

Mutual fund sales changes

The Canadian Securities Administrators (CSA) is banning Deferred Sales Commission (DSC) mutual fund sales.

After seven long years of studies, the CSA announced it intends to publish a final set of rule changes in 2020 that will effectively outlaw Deferred Sales Commission (DSC) mutual fund sales.

A total ban on DSC sales will provide significant protection for Canadian consumers and is something that is long overdue.  

Their Dec. 19 announcement confirms something that investor rights activists have been pushing to implement for years, but it came with a disappointing piece of news.

The sale of investments in Canada is regulated at the provincial level and the CSA announcement confirmed that every provincial securities regulator had signed on board with one big exception — Ontario.

The Ontario government has been pushing back on a nationwide DSC ban for years now and the Ontario Securities Commission issued their own notice on Thursday saying that they would not be banning DSC at this time.

Why is it so important that this fee structure be banned?

A DSC fee forces an investor to pay as much as seven per cent in fees if they cash out their investments in the first seven years of owning them. The fee typically drops one per cent for each year that the funds are held.

In exchange for locking this money in, the adviser or firm who sells the consumer this DSC loaded fund gets an up-front commission that can be as high as five per cent.

Simply put, the consumer suffers if they need to make a withdrawal and the salesperson who sells the fund makes a bunch of money.

Many in the investment community are left baffled about why the Ontario government is against a more transparent environment for retail investors.

There have always been people who support the use of DSC fees, but the reasons they offer to support or rationalize them reek of self-serving bias.  

The only group that has come out in support of this latest setback is Advocis, an adviser lobby group with the bulk of its membership in the life insurance industry.

This is a very different opinion from the various consumer-focused groups who have repeatedly stated how DSC funds are frequently prone to abuse by advisors. Anyone who looks at the issue objectively will have a hard time explaining how DSC fees help to put the clients’ interests first. 

This ban does not mean that everyone outside Ontario will now be safe though.

There are many people who sneak around these bans by mostly or only selling investments through insurance companies who are not bound by securities regulator’s rules.

This is something that consumers still need to be very aware of.

I do hope we can get all DSC options off product shelves nationwide (including insurance companies) very soon.

In the meantime, be sure to always ask if any DSC fees will be placed on any investments that you purchase and refuse to go ahead if they are there.


Comments are pre-moderated to ensure they meet our guidelines. Approval times will vary. Keep it civil, and stay on topic. If you see an inappropriate comment, please use the ‘flag’ feature. Comments are the opinions of the comment writer, not of Castanet. Comments remain open for one day after a story is published and are closed on weekends. Visit Castanet’s Forums to start or join a discussion about this story.

More It's Your Money articles

About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories