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At the end of February, 2013, investments in Canadian companies accounted for 58 per cent of all equity mutual fund money invested by Canadians, according to the Investment Funds Institute of Canada. U.S. equity funds accounted for 11 per cent.

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Canada's securities regulators should end the payment of certain well-hidden fees to mutual funds sellers, according to one industry veteran who believes the change could spur the kind of entrepreneurship and clarity investors need.

At a roundtable held by the Ontario Securities Commission, Paul Bates, chair of the OSC's Investor Advisory Panel, said regulators should commit to winding up "trailer fees," a sum paid by fund companies to advisers, in the next five years, even though the industry is nowhere close to consensus on the subject.

"I think there are moments in time where intervention is required because the industry... may not move as well as it should," Mr. Bates said. "To put off the decision is unnecessary. The research is complete."

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His call to action comes at a time when many countries in the world are reviewing how their mutual fund industries operate – how fees are disclosed, what service clients get for their money and whether embedded compensation for advisers causes bias. Some nations, such as the U.K. and Australia, have been making changes to the rules on trailer fees and embedded commissions, forcing advisers to have conversations with clients about how much their advice and skill costs. The concern is that advisers are being swayed to allocate investor savings to funds that pay the highest commissions, regardless of what service the customer receives.

There is plenty at stake for Canada, where about 62 per cent of investors own mutual funds and there were $910-billion in assets under management as of April. Late last year, the Canadian Securities Administrators, a body that represents all provincial securities commissions, wrote a paper that stated investors often do not know what fees they are being charged, or who pockets those fees. It is one point that most attendees at the OSC's event in Toronto on Friday seemed to agree with.

But beyond that point, dozens of players from banks, independent fund companies, and industry groups were divided on whether the current fee structure works in the best interest of investors, whose responsibility investor education should be, and whether regulatory action should be taken without more research.

John DeGoey, vice-president of Burgeonvest Bick Securities Ltd. would like to see disclosure on mutual fund reports as bold as advertising on cigarette packages, graphically showing investors that low-fee products are more likely to outperform.

Others, such as Noel Archard, head of BlackRock Canada, said the range of investment vehicles available and the rise of the Internet are changing transparency. "There's such a global viewpoint on financial products since 2008," he said. "You can either figure out how to do this smart, or you can be on the side of opaque financial products. Which side do you want to be on?"

For Mr. Bates, formerly an OSC commissioner, a business school dean and a chief executive at discount brokerage Charles Schwab Canada Co., it was a tough call. "I lived many years in the industry and trailer fees are part of the way folks got paid, part of the way I got paid. But that doesn't mean we shouldn't change," he said.

Mr. Bates said he had seen many other changes in the financial industry that seemed to spell disaster, but were eventually overcome. He recalled the day the Toronto Stock Exchange trading floor closed and the day mutual funds managers were no longer allowed to pay for advisers at fancy conferences. At these critical junctures industry players cried that the changes would be devastating, but that was not the case. "I'm a fervent fan of the entrepreneur. If there's a gap in the market place the entrepreneur will fill it," he said.

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As the debate over fees rages on, the more immediate change coming to the industry will be new disclosure rules aimed at putting information about returns and fees in the hands of investors through new reports.

While Mr. Bates thinks some of the language in the new so-called Client Relationship Model rules are "soft," he does believe they are an effective precursor to a greater fee crackdown. "Disclosure is part of the way, I do believe, of moving all the way to ban embedded trailer fees."

(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)

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