The mutual fund industry has given a thumbs down to the securities regulator's proposal to improve transparency in the sector.
In a series of letters, the country's largest mutual fund firms argue that National Instrument 81-106 -- the Canadian Securities Administrator's proposed policy to improve fund disclosure so investors can make more informed decisions -- is poorly timed, costly and awkward to implement.
Drawing the most ire is a proposal to require funds to detail their proxy voting records to unitholders. AIC Ltd., AGF Funds Inc., Investors Group Inc. and Mackenzie Financial Corp. were among the mutual fund managers opposed to detailing how they vote on shareholder issues, saying operating costs will rise and there is no demand for the information.
"We are strongly opposed," BMO Mutual Funds president and chief executive officer Edgar Legzdins said in a July 26 letter. "People invest in mutual funds in order to delegate the complex process of investment management; proxy voting is a subset of that process."
The Investment Funds Institute of Canada is opposed to a mandatory proxy requirement but revealed that some of its members believe providing data as to how a fund votes on corporate issues is a manager's fiduciary duty. IFIC represents the interests of the $476-billion fund sector.
"These members consider the lack of demand for this information on the part of the investing public to be a product of a general lack of awareness and understanding . . . these members believe that investors need to be better educated," IFIC said in its Aug. 4 submission.
At present, only Ethical Funds Co. of Vancouver details its proxy voting record. A handful of Canadian pension funds, including the Ontario Teachers Pension Plan Board, declare how they will vote on shareholder proposals.
In September, U.S. mutual fund firms must reveal how they vote proxies on behalf of unitholders. Fidelity Investments Canada Ltd., the Toronto arm of the U.S. asset manager, is likely to do the same in Canada. But AIM Funds Management Inc. and Franklin Templeton Investments Corp., Canadian subsidiaries of U.S. fund companies, have no plans to detail their proxy voting in this country.
The fund industry had a critical view of several of the CSA's disclosure proposals.Shortened filing deadlines: Shifting filing deadlines for interim financial statements from the current 60th day after the end of the period to before the 45th day will "place significant strain on the fund complexes and . . . render the delivery of these statement very difficult," IFIC said in its submission.Implementation: The CSA wants 81-106 to come into force by the end of this year. But many in the fund industry claim implementation will be a significant and costly operational challenge and want the effective date moved forward by as much as a year.Fund performance: Preparing and distributing a performance report for each fund accompanied by board approval within the shortened time frame "will create unachievable deadlines for large fund managers," Stephen Geist, president of TD Mutual Funds, said in a July 27 letter.
Poor equity markets and a series of mutual fund scandals in the United States have heightened regulatory scrutiny of the sector in Canada. In addition to the CSA disclosure policy, the national securities group will meet this fall to review the governance practices of mutual funds. The Ontario Securities Commission, meanwhile, is reviewing the trading practices of more than a dozen mutual fund companies as part of a market-timing and fair-trading probe.
© 2007 The Globe and Mail. All rights reserved.
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