Canadians focus on mutual fund boom, not scandal

MONTREAL — Mutual fund scandals in Canada don’t die; they just seem to fade away, if presentations at a conference are any indication.
To illustrate the point, ramifications from the collapse in August 2005 of Montreal-based mutual fund Norbourg Asset Management Inc. was discussed by few speakers at an April 11 conference of the Montreal-based Conseil des fonds d’investissement du Quebec, a unit of the Toronto-based Investment Funds Institute of Canada.
But most panelists seemed to have put the episode behind them.
That is a little surprising, because the scandal involves $115 million (U.S.) in missing assets. And there is an unresolved, class action against several defendants, including Quebec’s financial regulator, the Autorité des marchés financiers (InvestmentNews, April 17).
Instead, speakers focused on the regulatory and marketing nuts and bolts necessary to participate in a mutual fund market that has experienced an unprecedented increase in assets under management.
Canadian mutual fund assets increased more than $79 billion in 2006, cresting at a record $583 billion, as recently reported by the IFIC. Its membership is drawn from mutual fund management companies and retail distributors, as well as legal, accounting and other professionals.
Quebec is benefiting from the appetite for mutual funds.
“Mutual fund assets in Quebec have been growing at roughly the same rate as Canada as a whole over the past year,” said Shaun Hildebrand, an analyst with Toronto-based Investor Economics Inc.
Mutual funds assets grew 7.6% in the last quarter of 2006, versus 8.4% for the rest of Canada. Gross sales of mutual funds jumped 35% in Quebec, compared with 35.5% across Canada.
“Investors’ confidence in the growth value of mutual funds remains strong,” Pat Dunwoody, the IFIC’s vice president of member services and communications, said in an April 3 press release. Fund sales for the first quarter of 2007 are estimated at $15 billion, the highest since 1998. March marked six consecutive months of increases in assets.
To get a taste of those mouthwatering sales, effective marketing is key, industry observers said.
“Because of the complexity, fast pace and continuing evolution of the Canadian asset management industry, brand strategy is of critical importance to industry executives,” said Hugh Murphy, executive vice president of Credo Consulting Inc. in Vancouver, British Columbia.
His remarks concentrated on cognitive-psychology processes for benchmarking brands. Mr. Murphy told the approximately 300 delegates in attendance to pay attention to measuring the effectiveness of their brand, because that pays off, and “people respect what others inspect.”
Another topic focused on new rules to promote investor confidence, including insurance and minimum-capital requirements to ensure firm solvency and mandatory participation in indemnification and protection funds.
The effectiveness of regulations in Quebec, however, earned a mixed review.
Protecting against fraud
Regulatory strengths are efficient protection against fraud and malpractice, and were less constraining for dealers because of shared responsibility with representatives, said Benoît Jolicoeur, senior director of compliance at LBC Financial Services Inc. in Montreal.
Weaknesses in regulations are a lack of protection against a dealer’s becoming insolvent, and the consumer protection plan is an expensive, money-losing undertaking, he said. Moreover, risk management may be a challenge for some dealers in Quebec, because there is less responsibility on them to control independent representatives, and there is no protection for investors against issuers’ malpractice.
Louis Doyle, vice president for business development at the Toronto Stock Exchange, and Jacques Tanguay, vice president of the regulatory division at the Montreal Exchange, discussed how exchanges enhance the integrity of the Canadian capital market through disclosure and listing requirements, as well as post-
trading monitoring and investigations. (See related story, Page 40.)

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