Investor advocates would like the federal government to require or incentivize Canada’s big banks to offer third-party products, particularly mutual funds.Andrew Lahodynskyj/The Canadian Press
The federal Finance Department is studying whether large banks should be required to sell products and services from independent companies, a review that escalates the Ontario government’s concerns about competition in the financial services sector.
In September, 2021, Royal Bank of Canada RY-T, Canadian Imperial Bank of Commerce CM-T and Toronto-Dominion Bank TD-N, three of the country’s largest financial institutions, shrank their product shelves and stopped selling other companies’ investment funds to clients of their financial-planning divisions. These third-party funds, including mutual funds popular with small investors, were typically sold by financial advisers and planners working in bank branches.Employees at the three banks are now restricted to selling proprietary funds, which are run by the banks themselves and compete with the third-party products.
Shortly after the banks cut off access, Ontario Finance Minister Peter Bethlenfalvy publicly expressed concern and directed the Ontario Securities Commission to study the matter. The results of the OSC’s review, completed in 2022, have never been made public.
The federal government is now taking up the issue as part of its broad review of competition in the banking sector, which it launched on Dec. 21 – the same day it approved RBC’s takeover of HSBC Bank Canada.
As part of a call for public comment on the review, the government sought feedback on several competition-related concerns through a series of nine questions. One of those questions was about whether large banks should be “required or incentivized” to offer third-party products and services.
The public comment period ended in early March, and the responses the government received have not been posted publicly. But individual respondents have the right to publish their own commentary.
One group that chose to do so is investor advocate FAIR Canada, which wrote in its submission that the federal government should require or incentivize Canada’s big banks to offer third-party products, particularly mutual funds.
“Unfortunately, several banks have chosen to restrict their mutual fund product shelves to proprietary, limiting options for bank branch customers,” FAIR Canada’s chief executive officer, Jean-Paul Bureaud, said in the group’s response to the government. “… Disappointingly, the banks chose to prioritize their own interests over those of their clients.”
Mr. Bureaud said the banks’ decision has “reduced choice” for consumers and “entrenched” the banks’dominant market share in mutual funds.
He added in an interview that federal involvement here is crucial. “These issues are complicated, and I don’t think provincial governments can dictate to the banks,” he said. “That’s why I think it’s going to require dialogue between different levels of government to address the fundamental problems here.”
Canadian investors held more than $2-trillion in mutual fund assets as of February, 2024, according to the Investment Funds Institute of Canada.
Fifteen years ago, independent fund companies accounted for 51 per cent of the net assets in the fund industry, while banks and credit unions made up only 38 per cent, according to research conducted by Investor Economics, a division of ISS Market Intelligence. As of March, 2023, the independents had dropped to 36.6 per cent, while the banks and credit unions had surged to 50.4 per cent.
When the three large banks restricted access to outside funds, they argued they were doing so in response to new regulatory rules, known as client-focused reforms. These rules require advisers to have deeper knowledge of the investment funds they recommend to clients. The banks claimed this meant financial planners could offer only proprietary products. (Currently, the banks’ full-service brokerage accounts for do-it-yourself investing clients do not have these restrictions.)
When Mr. Bethlenfalvy, the Ontario Finance Minister, called on the OSC to review the banks’ decision, he wrote in a letter to the commissionthat the banks’ actions appeared to “run counter” to the underlying intent of the client-focused reforms, which were designed to mitigate conflicts of interest and ensure that investors have access to the products that best meet their needs.
In February, 2022, the OSC completed its review and submitted its recommendations to Mr. Bethlenfalvy. Since then, both the OSC and the Ontario Ministry of Finance have not publicly disclosed the recommendations. In February, 2023, the OSC denied The Globe and Mail access to the report in response to a freedom of information request. At the time, the OSC said the recommendations were not being released publicly because they fall under an exemption for “advice to the government.”
In the OSC’s draft statement of priorities for this year and next, the regulator said it was concerned about what impact “predominantly proprietary products shelves” may have on client outcomes if independent products are not readily available for investors and their advisers to consider. The OSC cited higher fees and inferior performance as examples of potential consequences.
Finance Department spokesperson Caroline Thériault said the federal government is currently reviewing the public comment letters it has received.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
