My Suggestions to the Ontario Securities Commission on Retail Investor Issues

Last Thursday I noted that the Ontario Securities Commission, the financial securities regulator in Ontario, had established the Joint Standing Committee on Retail Investor Issues and is in the process of collecting public input. Being chronically opinionated, I must take a shot at this.

To the Joint Standing Committee on Retail Investor Issues,

Here are some actions that I believe would benefit retail investors:

1. Increase participation and seek wider input - with only 12 people on the conference call recently, that can hardly be representative; to uncover more suggestions and ideas, reach out to the online world and solicit input from discussion forums like the Financial Webring and Canadian Business and many bloggers from mainstream media folks like Ellen Roseman, Larry MacDonald, Jonathan Chevreau and Rob Carrick, to public-spirited professionals like Preet Banerjee, Norm Rothery, James Hymas, to joe public fanatics like Canadian Capitalist,Four Pillars, Michael James, Barel Carsan, Middle Class Millionaire, Million Dollar Journey, Investing Intelligently. See the links in the sidebar of my blog CanadianFinancialDIY. I am certain you will get well-informed, though perhaps pointed comments.
2. Abolish the OSC and other provincial regulatory bodies and create a single national regulator. This regulator should have greater resources and ability to investigate and enforce laws on the gamut of abuses that harm individual investors. Laws and regulations are of little use unless they are enforced.
3. Give priority to improving the regulation of advisors/ sales reps over the products themselves. Most retail investors do not have the time, inclination or skills to manage their own investing and this is becoming less so as the number and complexity of financial products increase. Investors want and need the convenience that already exists through the selling process of various providers but they also need someone trustworthy. Make the disclosure by advisor / sales person to the client of the compensation fees and payments mandatory in percentage and dollar terms.
   
4. Make the provision of financial advice a profession with regulatory requirements for certification ( a combination of knowledge and experience), licensing registration and ethics standards that are actually enforced. Recognize that investing advice is merely a subset of overall personal financial planning and cannot be isolated from it. For example, sometimes money is better spent on insurance than mutual funds, or invested in one's own human capital or an annuity etc. The investing process must start and end with a person or family's holistic, integrated neds so that investing decisions are made in the proper context. The Investored.ca website, which you at the OSC sponsor, implicitly recognizes this by providing information on such diverse not-strictly investing topics as managing debt, buying a house and insurance.
   
5. Oblige mutual fund companies to improve their disclosure by:

• revealing all the costs associated with a fund, including trading costs borne by the fund, i.e provide total expense ratio not just management expense ratio, since this can be a significant drag on net performance; the new Framework 81-406 Point of Sale Disclosure for Mutual Funds and Segregated Funds is extremely disappointing in excluding trading costs since they are significant and are said to vary considerably amongst funds; total costs are an important predictor of future fund performance. See this article in Fundscope.
  
• providing illustrations of the effects of the charges and fees on fund performance through standardized terms from the investor's perspective so that the investor can compare across funds and companies
• publishing turnover ratios of funds

I would suggest that the OSC examine the UK system of regulating advisors and fact disclosure to investors. Many of the above ideas are already implemented in the UK under the Financial Services Authority, which is the single national regulator for investment and financial advice to retail investors.