Ontario Regulator To Ban Deferred Sales Charges On Mutual Funds

The Ontario Securities Commission (OSC) says it is planning to ban deferred sales charges on mutual funds starting next year.

The securities regulator has announced that it is preparing to prohibit the payment of upfront sales commissions by fund organizations to dealers. The move will harmonize the watchdog's policy on such fees with the rest of Canada.

Deferred sales charges are paid by investors when they withdraw money from mutual funds before a set date. Critics have long opposed such fees because advisers earn upfront commissions higher than they would on other types of mutual funds, potentially incentivizing them to push deferred sales charge funds over ones with lower costs.

The Canadian Securities Administrators announced a ban on such charges last year, but the OSC has been unwilling to make a similar change until now. The OSC attributed its reversal now to its willingness to support a harmonized deferred sales charge ban.

The Portfolio Management Association of Canada, which represents more than 290 firms managing $2.8 trillion in assets, applauded the decision.

The Canadian Foundation for Advancement of Investor Rights was also pleased with the decision, saying it comes as the country is trying to rebound from the COVID-19 pandemic and people are looking to rebuild their retirement savings.

The investor rights organization said the OSC's move will protect investors from being locked into funds that may be performing poorly and help them free up investments to cover unforeseen expenses without worrying about redemption charges.