The Investment Funds Institute of Canada (IFIC) says people who purchase segregated funds should receive the same kind of reports that CRM2 now requires for mutual fund investors.

In May, the Canadian Council of Insurance Regulators (CCIR) published an issues paper comparing the regulation of mutual funds and Individual Variable Insurance Contracts (IVICs), better known as segregated funds. Among other things, the CCIR paper noted that while the second phase of the Client Relationship Model (CRM2) requires mutual fund dealers to disclose the compensation they have been paid on client accounts, there is no such requirement for segregated funds.

Reasonable harmonization

In its submission to the CCIR, which was released on July 18, IFIC agrees with the issues paper’s conclusion that seg funds and mutual funds are similar products and that "reasonable harmonization" would improve the fair treatment of consumers.

"We support the disclosure-related recommendations of the Canadian Life and Health Insurance Association (CLHIA), which include expanded CRM2-style statements for IVICs," says IFIC. "We also support providing IVIC investors with equivalent account performance reporting to that required of mutual funds under CMR2. For lVICs, the report would cover policy performance. Including this measure would assist IVIC investors to understand the nature of the product they have purchased and what they can expect it to deliver to them."

Applying the mutual fund dealer model

IFIC also points out that segregated funds are distributed differently than mutual funds. Since independent insurance advisors may have contracts with a number of insurers or managing general agents, IFIC says it may be difficult for regulators to have a complete picture of a client’s portfolio, making oversight more challenging.

"These distributed and multiple oversight arrangements present weaknesses in supervision that could negatively impact the fair treatment of consumers," reads the IFIC submission "Applying the mutual fund dealer model to IVIC distribution would more clearly define where responsibility rests and whom to hold accountable."

The complete submission is available on the IFIC web site.