regs to riches

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šŸ¦ know your product

collusion in real-time

Vass Bednar
Oct 3, 2021
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justin L! cousson @justincousson
JUST LET HIM WORK FROM HOME
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6:07 PM āˆ™ Sep 23, 2021
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šŸ‘€ Canadians can watch collusion in real time.

Many banks have now stopped making non-bank investment funds (ETFs, mutual funds, etc) available to their clients through their investment advisors. You can only invest using their funds.Ā 

This undermines the viability of independent funds in Canada and could increasingly centralize access to capital.Ā 

Twitter avatar for @rcarrick
Rob Carrick @rcarrick
Big bank policy on third-party funds sabotages advisers and serves investors badly
theglobeandmail.comBig bank policy on third-party funds sabotages advisers and serves investors badlyThree big banks are degrading the brand of advice by effectively turning their planners into sellers of bank products
1:40 PM āˆ™ Sep 10, 2021
35Likes15Retweets

While this behaviour *is* anti-competitive (it’s exclusionary), it comes as a direct response to recently updated rules about what an Investment Advisor needs to know.Ā 

The regulator (the Mutual Fund Dealers Association) wants Advisors to be well-informed on investment products, but probably doesn’t (or didn’t) want to give banks a reason to be exclusionary.Ā And the Chair of the Canadian Securities Administrators is not pleased.

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Report on Business @globebusiness
Banks cannot cut off third-party funds for clients, head of securities regulators group says
dlvr.itBanks cannot cut off third-party funds for clients, head of securities regulators group saysSeveral banks stopped sales of third-party investment products earlier this year after securities regulators announced plans to roll out new client-focused reform rules
6:10 PM āˆ™ Sep 30, 2021

TD Bank seemed to be the first mover, acting as a provocation mostly in protest of sorts.Ā LOL at the move having ā€œminimal impact.ā€

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Report on Business @globebusiness
TD Bank says plan to halt sales of third-party funds will have minimal impact
dlvr.itTD Bank says plan to halt sales of third-party funds will have minimal impactThe decision to no longer sell third-party investment funds was not a ā€˜dramatic move’, said the head of TD’s wealth management division
9:52 PM āˆ™ Sep 14, 2021
4Likes2Retweets

It makes sense that banks would *prefer* that you buy their funds; but as long as they are charging trading fees, they are able to earn a profit as long as people are buying and selling.Ā 

The thing is, trading fees are in a bit of a race to the bottom. National Bank went to a zero trading fee model back in the summer, calling it ā€œthe most competitive online brokerage fee structure in the Canadian market,ā€ during their Q3 earnings call.

From an article in the Financial Post:

The rest of Canada’s Big Six said that they are not feeling any pressure to follow the National Bank. But TD Bank ā€œhas the most to loseā€ since commissions comprise about two per cent of its revenue and about four per cent of its earnings, according to National Bank analyst Gabriel Dechaine.

While the self-preferencing is a response to a higher ā€œKnow Your Productā€ threshold that is ironically intended to better protect consumers, it’s a convenient reason for banks to limit their investment offerings amidst downward pressure on trading fees.Ā 

Wealthsimple is at 0, and a bunch of US players like Fidelity, E-Trade, and Vanguard are also commission-free. This trend may create pressure for Investment Advisors to nudge clients towards bank-driven funds.Ā 

The increasingly centralized control over capital formation among the Big Six incumbents is remarkably anti-competitive. You need capital to simply begin to transform ideas into business opportunities - let alone scale the growth of new entrants.Ā 

Share regs to riches


šŸ›ļø regs

New rules (ā€œClient Centered Reformsā€) from the Canadian Securities Administrators related to ā€œKnow Your Productā€ or ā€œKYPā€ seem to be the catalyst for this change.Ā 

The amendments prescribe the following obligations with respect to KYP:

  • Registered firms should establish a KYP process that works for their business models while ensuring that all securities that they make available to clients are assessed, approved and monitored on an ongoing basis for significant changes.

  • Registered individuals must not purchase, sell or recommend securities to clients unless reasonable steps have been taken to understand the securities and have obtained their firms’ approval before doing so.

Designed to better protect investment clients from the self-interests of their advisors, these new rules are perversely allowing banks to limit their investment options. Ā 

šŸ¤‘ riches

As upstart competitors seek to win market share through 0% trading fees, banks are under increasing pressure to charge less for the management of their funds; meaning their source of revenue is limited to trades. This has implications for independent mutual funds like: Mawer, Leith Wheeler, Beutel Goodman, Steadyhand, which will be even less accessible.Ā Ā 

Limiting investment options to the bank’s proprietary products is a form of self-preferencing. It’s a blatant response to these new rules, and could future enrich the Big 6 at the expense of investor choice.Ā 

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šŸ“š This Friday concludes a 6-part series on ā€œBig Tech in our Backyardsā€ with the Toronto Public Library. Join us in conversation with Jillian York and Yuan Stevens at 12.00 ET.

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Verso Books @VersoBooks
On October 8th at noon EST, join @jilliancyork for a discussion on her new title, Silicon Values! Hosted by @torontolibrary with discussants @yuanstevens and @VassB. RSVP below! versobooks.com/events/2198-si…
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6:07 PM āˆ™ Oct 1, 2021
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Sign up for the TPL event


+ I enjoyed this strange book written entirely in Slack messages.

Twitter avatar for @NewYorker
The New Yorker @NewYorker
ā€œSeveral People Are Typingā€ wonderfully captures Slack’s tropes, from the broad (anxious jokes about the boss reading one’s D.M.s) to the subtle (the use of Giphy to soften an interaction).
nyer.cmReading a Novel Set Entirely in SlackKaty Waldman writes about ā€œSeveral People Are Typing,ā€ Calvin Kasulke’s new book that takes place in Slack, the workplace-messaging app.
12:28 PM āˆ™ Sep 23, 2021
43Likes10Retweets

Vass BednarĀ is the Executive Director of McMaster University’s newĀ Master of Public Policy in Digital Society Program.

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