In 2013, the CSA commissioned independent third party research into potential investor protection and fairness issues that may arise from Canada’s current mutual fund fee structure.
One area of interest for the CSA was the extent to which sales and trailing commissions influence mutual fund sales. The findings were recently published in “A Dissection of Mutual Funds Fees, Flows, and Performance”.
Some highlights of the report:
- Funds that outperform their peers attract more sales; however, trailer fees and deferred sales charges interfere with the relationship between increased performance and increased sales.
- Funds with trailers see increased sales regardless of performance. Generally, the greater the trailer fee, the greater the level of net flows that has no relationship to past performance.
- An increase in trailer fees is associated with a decrease in future outperformance. A decrease in trailers corresponds to an increase in performance.
- Funds whose sales are more sensitive to past performance tend to have better future performance.
- Funds that sell more through affiliated dealers tend to perform worse.