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Originally published: July 7, 2016
John Mountain is the Director of the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic…+ read full definition’s (OSCOSC See Ontario Securities Commission.+ read full definition) InvestmentInvestment An item of value you buy to get income or to grow in value.+ read full definition Funds and Structured Products Branch, the operating branch responsible for regulating investment products such as mutual funds and exchange-traded funds (ETFs). John recently sat down with the Investor Office to discuss his background and how his team is working to protect investors.
I joined the OSC as Director of the Investment Funds and Structured Products Branch earlier this year. Before that, I was General Counsel and Chief Compliance Officer at a mutual fund companyMutual fund company An investment company that pools money from investors and invests it in a mix of investments, such as stocks, bonds, and money market investments. Most mutual fund companies offer a choice of more than one fund.+ read full definition, where I also maintained the company’s corporate-social responsibility portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition, ensuring that the company was taking into accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition all of the stakeholders that it works with. That was a lot of fun for me since I’m very passionate about issues around diversity and inclusion.
I consider myself to be a lawyer, but for most of my career I’ve worked in legally-oriented jobs that aren’t the traditional practice of law. I also have an MBA, and that has helped inform my career as well, since much of my work has been focused on building systems.
I actually spent part of my early career at the OSC as well. I articled for the OSC’s General Counsel’s Office after law school, and came back to the organization in 1989 to practice securities law. I ended up staying for seven years.
On the evolution of the OSC…
The OSC was a different organization when I first came to work for it compared to now. It was directly part of the government, not the agency it is today, and in the intervening years it’s become a much more independent and transparent organization. We now publish things like the Annual ReportAnnual report A financial report that a company prepares for its shareholders each year. Includes a balance sheet, financial statement, auditor’s report, and information about the company’s operations and financial situation.+ read full definition and Statement of Priorities that makes it very clear what our goals are and how we’re performing against them.
The OSC also didn’t have anything like the Investor Office. Investors weren’t as considered back then because the markets were dramatically different. The number of retail investors we have today, and the importance of their investments, is unbelievable compared to what it was 25 years ago. Back then, I didn’t know people who talked about their portfolios. Today, I have young family members talking to me about their investments.
On reviewing how advisors are compensated…
Our Branch regulates managed assets that are sold to Ontario investors, such as mutual funds and ETFs. Our team reviews filings made by industry participants to make sure that they’re in compliance with the rules and regulations applicable to them.
The other significant part of the mandate is to make sure that policies are reflected well in the rules for the industry. The best example of this would be the discussion we’re having right now on the ways that advisors are compensated. The current rules don’t say very much about compensation at all, and we’ve got an industry full of investors who don’t know or understand how their advisor is being compensated.
This is an important issue to the Canadian Securities Administrators (CSA)Canadian Securities Administrators (CSA) The Canadian Securities Administrators (CSA) is an umbrella organization of Canada’s provincial and territorial securities regulators whose objective is to improve, coordinate and harmonize regulation of the Canadian capital markets+ read full definition, and my team, along with our CSA colleagues, is very involved in thinking about how advisors should be compensated, and what kind of mechanisms should be in place to make compensation fair and transparent. The CSA will be consulting on discontinuing embedded commissionsCommissions What you pay to a broker or agent for their services. Often called a “sales commission”. For example, you pay a fee to someone who buys or sell stocks or real estate for you.+ read full definition in the sale of mutual funds, which is the next logical step in removing hidden conflicts and creating an industry that’s more transparent. This work complements other recent proposals without being duplicative.
On new rules for compensation disclosure…
With the new rules around disclosure of fees and commissions coming into effect this summer, investors will start receiving statements showing how much their advisor is being compensated, and how that compensation happens. These rules require most registered firms to produce annual reports that give a clear picture of how an investor’s investment is performing, and the compensation earned by their advisor. This sort of transparency will help investors better understand all aspects of their investment.
On what investors should know…
Investors should be paying attention to what they purchase and try to understand more about it. For most investors, managed assets of one form or another are the primary way that they access the market, and these types of products are therefore often the ones that have the most direct impact on investors’ lives and their savings for the future. Our team provides oversight of the rules around these products, and to the extent that the rules are good, it leads to better outcomes for investors.