With the ban on new sales with deferred sales charge (DSC) Applicable segregated fundsOntario’s regulator continues to consult on further measures to address seg DSC funds purchased prior to the ban.
Financial Services Regulatory Authority of Ontario (FSRA) proposal would enable insurers to benefit from simplified disclosure as they would replace DSC with “undoubtedly better” sales charges for customers with existing pre-authorized DSC payments. Switching to an advisor chargeback option does not qualify for enhanced disclosure.
“If the updated proposed amendment is approved, insurers may simplify the information provided to customers by offering the customer a new sales charge option that is superior to DSC in every respect,” the FSRA said in a release.
The changes are based on feedback received during the previous consultation period and aim to clarify behavior that is inconsistent with the Unfair or Deceptive Acts or Practices Principles.
The new sales charge option is “clearly better” than DSC if the percentage of any upfront fee and management expense ratio is no greater than DSC and the new sales charge does not create any new conflicts, the updated proposal says.
In such cases, the disclosures focus on the new sales charge option rather than describing all available options. Additionally, a customer may receive the disclosure “immediately” after the insurer first applies the new processing fee option, rather than before.
Simplified information will not be available if advisor chargeback applies to pre-authorized deposits. One benefit of the proposed changes is a reduced likelihood that clients will be charged back to the advisor, FSRA said in its request for comment.
The regulator also said insurers would benefit from lower compliance costs because they would not have to provide customers with more costly detailed disclosures, and agents would spend less time answering questions due to customer confusion about detailed disclosures.
A flowchart illustrating the proposed changes and required disclosures is available on the website last page (Appendix D) of the request for comment.
The proposal would apply to transactions that occur after the amendment comes into force (i.e. the amendment will not have retroactive effect).
The consultation will end on June 30.
