New Directions For Mutual Fund Governance In Canada: Investor Protection From Excessive Fees and Expenses

Canadian investors pay among the highest expenses and advisory fees worldwide. There is currently no mechanism in the existing Canadian mutual fund governance regime to protect investors against excessive advisory fees. Recent changes to the Canadian securities regulatory framework were precipitated by the mutual fund scandal in Canada and the United States that involved late trading and market timing and involved introduction of national instruments for enhancing disclosure and the introduction of an independent review committee focussed upon conflicts of interest. While the existing disclosure mechanism in Canada is appropriate, it is not effective because investors do not fully understand the information being disclosed. An enhanced program of public involvement, particip~tion and education should be conducted in Canada to enhance investor protection such that disclosure is an effective governance mechanism. This program should include increased involvement and participation of investors in the development and implementation of mutual governance mechanism in Canada. The Independent Review Committee falls short of the governance agency contemplated by the Canadian securities regulators' Concept Proposal and recommendations in the related reports commissioned by these agencies. I recommend a fund board as an appropriate mutual governance agency for Canada, which should have a fiduciary duty for investor protection from excessive mutual fund expenses and fees.