Banks suspend third-party mutual fund sales to prepare for rule change – .

Banks suspend third-party mutual fund sales to prepare for rule change – .

The new set of rules – known as Client Focused Reforms (CFRs) – are slowly being rolled out across the industry in stages.

Fred Lum/le Globe and Mail

Several of Canada’s largest banks have suspended the sale of third-party investment products from their financial planning services, as new regulatory rules will soon require advisers to learn more about the funds they recommend to clients.

The Royal Bank of Canada, The Toronto-Dominion Bank and the Canadian Imperial Bank of Commerce have all advised clients of their financial planning firms that advisors will no longer sell third-party funds for any investment portfolio. (The changes do not apply to full-service bank brokerage accounts or to clients who invest themselves.)

The new set of rules – known as Client Focused Reforms (CFRs) – are slowly being rolled out across the industry in stages. Changes to the ‘know your product’ rule, or KYP, will come into effect at the end of 2021 and, among other things, resolve conflict of interest issues such as advisor compensation linked to proprietary products. .

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However, as wealth management companies begin to prepare for the changes, investor advocates and independent fund companies fear that the KYP initiative, put in place to protect investors, could result in the withdrawal of a certain number of independent fund companies from product departments and the removal of proprietary products. the only option for investors.

Financial Planning, TD Wealth Management, a division of TD Private Wealth, and CIBC Imperial Service, a CIBC advisor segment that serves branch clients with at least $ 100,000 in assets to invest, both announced earlier this year that they would no longer sell third-party funds as of July 1 and June 30, respectively.

In an internal memo, TD warned its staff that the change “would reduce the risk” of complying with new regulatory rules that require advisors to learn more about the products they sell.

Peter Lee, senior vice president of CIBC Banking Centers, said in an emailed letter to clients that “by simplifying the range of products available, your advisor can provide more focused advice through deeper knowledge of our products. CIBC Investment Trust ”.

RBC began reviewing its product line in early 2021, following the introduction of a more formalized review process by CFRs, said Michael Walker, vice president and head of mutual fund distribution RBC Investment and Financial Planning, in an email.

As a result, the bank will discontinue all sales of third-party funds in its bank branches as of December 31.

“As part of our ongoing review process, we have reassessed the offerings available on our product shelf and developed a plan that allows us to continue to provide choice to our clients and advisors while ensuring that we meet our regulatory obligations. Mr Walker said.

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RBC, TD and CIBC have all confirmed that they will not remove any existing third-party products held in the investment portfolios by clients and that they may accept the transfer of funds for new and existing clients, but no new purchases will be made. allowed in the future.

At TD, the decision to only sell in-house funds created a wave of over 100 financial planners who moved their businesses to the bank’s full-service brokerage division, Private Investment Advice, TD Wealth Management, which continues to allow a customer to purchase banking products.

Jason Pereira, independent advisor at Woodgate Financial Inc., a financial planning firm in Toronto, says the recent move by some Canadian banks is an “outright shutdown” of access to all third-party funds and is “damaging To investors. be offered the best fund available.

“There is a lot of daylight between having no options and having all the options,” Pereira said in an interview. “You cannot guarantee that you will have the cheapest ETF for every sector of the economy, or the best performing mutual fund for every sector of the economy. So if you say, “We’re just going to sell our own products,” then you’re basically saying it doesn’t matter, even if it’s not the best outcome for your customer.

“They use regulations as an excuse to own a boutique. “

One of the country’s largest independent fund companies, Fidelity Investments Canada ULC, declined to comment on the banks’ decision to remove them from their financial planning departments. Like many independent fund companies, Fidelity relies on distribution channels to sell its funds, including all Canadian banks. During a public comment period prior to CFR approval, Fidelity raised concerns with regulators over the proposed rules, which led more companies to close their product shelves.

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“It would be an unfortunate consequence of CFRs if more companies adopted closed shelves,” Rob Strickland, president of Fidelity Investments Canada, in the comment letter. “But if they do, it is very important that [regulators] specify the process for evaluating their own products against third parties, as well as the consequences as well as concrete measures that must be taken if the proprietary products are not suitable compared to third-party products.

National Bank of Canada has never sold third-party funds through its branch advisors, but before the new KYP rules, the bank will add the possibility for investors to transfer third-party funds into a new client account. or existing.

Nancy Paquet, Senior Vice President Strategy, Investment and Savings, Retail Banking at National Bank, said the decision to add the new platform was in line with the addition of 120 branch retirement investment advisors, a new role created in 2019.

“If we’re really serious about financial planning and retirement, and if we take a look at the big picture of our customers, we need to be able to talk about all the products that our customers have and we want to be able to give them a complete picture and increase the level of advice they receive.

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