Skip to main content
//empty //empty
Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you manage your health, your finances and your family life as Canada reopens.
Visit the hub

Investor advocate FAIR Canada is asking the financial services industry to suspend redemption fees on mutual funds that charge investors early withdrawal fees during the coronavirus pandemic.

On Monday, the industry group called on all Canadian banks, insurance companies, mutual fund dealers and investment companies to offer relief on withdrawal penalties to all retail investors suffering financial hardship related to the COVID-19 crisis.

Mutual funds that include fees known as deferred sales charges (DSCs) penalize investors when they pull money out of a mutual fund before a set date. Regulators are in the process of banning the controversial funds, which pay advisers an upfront commission that is often higher than commissions for other types of mutual funds.

Story continues below advertisement

“It’s now time for the financial services industry to take a long-term enlightened view and act in the best interests of their clients,” Ellen Roseman, co-chair of FAIR Canada, said in a statement. “In these unprecedentedly turbulent times, the DSC mutual fund or segregated fund (the equivalent insurance industry product) are particularly harmful to investors who must access their cash."

Last December, Canadian Securities Administrators, an umbrella group for all provincial securities regulators, announced most provincial and territorial regulators were moving ahead to ban the sale of DSC funds. Ontario’s government did not support the ban and said it was going to place certain restrictions on the sale of the investments in the province.

Over the past week, about a million Canadians have filed for employment insurance benefits, while Ottawa expects another four million applications to be filed under a new relief fund that will pay $2,000 a month to workers who have lost income because of the COVID-19 pandemic.

“The financial services industry must step up and support Canadian retail investors at this critical time,” Ms. Roseman said.

One of the biggest consequences of the DSC option for investors occurs when they have to redeem their money earlier than expected owing to unforeseen circumstances. One of Ontario’s rules – which isn’t expected to be implemented until later this year – would allow an exception for investors during financial hardship circumstances, such as involuntary loss of full-time employment, permanent disability or critical illness.

But for those investors currently invested in DSC funds, penalties are still being charged if they cash out of their investments early, regardless of their financial situation. DSC funds force clients to pay as much as 6 per cent to cash out their mutual funds, a fee that tends to decline by 1 per cent each year, falling to zero after the fund is held for five to seven years.

“The many well recognized objections to DSC mutual funds and DSC segregated funds, including conflicts of interest and excessive hidden fees are even more egregious at a time when many Canadians need urgent access to their money,” FAIR said.

Story continues below advertisement

The Investment Funds Institute of Canada, an industry group for Canada’s asset managers, didn’t have an immediate comment as it is discussing the proposal with its members.

John DeGoey, portfolio manager with Wellington-Altus Private Wealth Inc., a long time advocate for the ban of DSC funds, says as an alternative to cashing out, clients could consider using their emergency funds or access to credit before dipping into their investments – or if necessary, investors could take only 10 per cent out of their DSC funds – the allotted amount allowed before incurring a penalty.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies