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Globe and Mail reporter Barrie McKenna.The Globe and Mail

Securities regulators don't seem to be in a big hurry to save investors from the abuses of hidden mutual fund fees.

They have been sounding the alarm on embedded commissions and trailer fees since at least the mid-1990s.

Back then, the industry was measured in tens of billions of dollars.

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Today, Canadians have $1.3-trillion of their wealth socked away in mutual funds.

Regulators have mused about an outright ban since at least 2012.

And the wheels are still spinning. The Canadian Securities Administrators – the umbrella group for provincial and territorial securities watchdogs – launched a 150-day public consultation earlier this month on a "potential" ban of embedded fees, including the hefty and mostly invisible "trailing" fees that reward salespeople for keeping funds in investors' portfolios.

But don't worry. Regulators won't do anything hasty. The CSA insists no final decision has been made.

And the comment period was purposely extended beyond the normal 60 or 90 days, as regulators tiptoe around the inevitable blowback from the powerful funds industry.

"This is a consultation process," assured CSA chairman Louis Morisset, head of Quebec's Autorité des marchés financiers, underlining the obvious, "and we are mindful of the need to carefully assess potential impacts before making a decision."

By "impacts," Mr. Morisset is no doubt referring to the gusher of revenues that now flows to thousands of fund managers and salespeople across the country.

What a ban would mean for investors is pretty well known, and it's overwhelmingly positive.

The CSA has already concluded that these unseen fees raise troubling and pervasive conflicts of interest that "misalign" the interests of investors and mutual fund sellers. This contradiction encourages dealers to sell funds that enrich them, but not necessarily clients, and at a cost that "may exceed its benefit to investors," according to a CSA discussion paper.

In other words, your adviser may be putting you into a particular fund, not because it's going to make you wealthy, but because the adviser is getting paid to do that.

Getting rid of embedded fees would "make for more informed, engaged and empowered investors that expect and demand services that align with the fees they pay," according to the CSA.

The alternative is to move to upfront commissions, flat hourly fees or other clearly visible arrangements, as one has with a dentist or personal trainer.

The change would lower overall fees substantially – boosting returns by nearly a percentage-point per year, the CSA says.

Canadian mutual funds have long had some of the highest fees in the world – 2.4 per cent on equity funds and 1.5 per cent on fixed-income funds in 2015, according to Morningstar.

That might seem like chump change in a year like 2016, when the TSX gained more than 20 per cent. But over time, through bull and bear markets, it significantly eats into returns.

The move by regulators on mutual-fund fees coincides with the arrival of new rules in Canada, mandating what brokers and financial advisers must disclose about fees to their clients on annual statements. Among other things, they'll now show the dollar-value of the advice they're giving you, including the money that brokers pocket in mutual-fund trailing commissions, typically about 1 per cent.

Funds that pay trailing commissions are the norm in Canada, accounting for roughly two-thirds of mutual funds in Canada, measured by assets.

Unfortunately, the new disclosure rules have a big loophole – namely, the larger piece of the fee pie that mutual-fund managers quietly pay themselves out of your funds.

The snail's pace of reform on this issue is head-scratching. Britain and Australia, two countries with similar legal and political systems, have successfully gotten rid of embedded fees in recent years, without triggering the catastrophe predicted by Canada's mutual fund industry.

The industry warns that a ban on embedded fees will leave some investors with no financial advice at all, and secondly, that it's an overreaction because there is no evidence of widespread abuse.

Regulators are already behind the curve. Investors have been migrating in droves in recent years to low-fee index funds and fee-based advice.

Far from rushing into anything, regulators have dithered for years, leaving the industry free to feast on the inherent conflicts of interest.

It's time to cut short the consultation, and do the right thing.

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