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IFIC says fund industry can expect more checks and balances

By Daniela Cambone | October 19 2005 02:40PM

It has only been a few months that Brenda Vince has been wearing the hat of chairperson at the Investment Funds Institute of Canada (IFIC), but she already has some clear goals. One topping her list is defining what IFIC is and should be.

The organization has an important meeting in the upcoming weeks to talk about its direction and priorities it must deal with, Ms. Vince reveals in an interview with The Insurance Journal.

“As incoming chair, there is still much to do at the board to shake the direction of IFIC. But I think the mandate of IFIC is obviously one where we need to do a review. The evolution of what IFIC is and what it should be is an important thing we have to deal with,” she says.

Besides acting as president for the Royal Bank of Canada’s mutual fund arm, Ms. Vince took over as IFIC chairperson in August after the sudden resignation of Michel Fragasso. Mr. Fragasso was also senior vice-president of Norbourg Asset Management, the Montreal firm now in hot-water for allegedly embezzling $130 million from 9200 clients.

The rebuilding of confidence in the consumer’s eyes – especially after such situations as Norbourg – is also a priority. “Certainly any situation like that raises questions and I think it opens up the whole discussion of investor protection,” states Ms. Vince.

She adds that some other challenges will emerge after the Quebec situation is fully analysed. One such challenge is to build a system of better checks and balances for fund managers. This is essential to avoiding fraud.

“In a smaller organization something as fundamental as segregation of duties isn’t possible when you have the same person doing three things…I am not flagging every small shop. It is just that in a smaller shop, you are fundamentally coming down to relying on the one person.” Such a situation can present a problem when it comes to maintaining good control and making sure things don’t happen, she suggests.

Ms. Vince would also like to see increased capital requirements for funds to cover any losses from a fraud.

However, her solution is neither simplistic or a band-aid one for the $550-billion mutual fund industry. Ms. Vince explains, “This is now a huge industry and one where a lot of Canadians are placing reliance.”

And simply having an investor protection fund is not the way to make the industry more responsible, she explains. Rather she says, “The investment industry has to make every attempt to not only do things which are good for the industry, but that are good for the consumer as well. And I would like us to define investor protection in its broadest sense, so that means manager regulation, licensing and more oversight.”

Ms. Vince recognizes that many advisors squirm at the mere mention of “more regulation,” and is aware that is where one of the real challenges lies.

“I think we have to try and have deeper regulations which are very pointed, and it will be important to understand each of the pieces,” she states.

Ms. Vince also feels that more time needs to be spent at the point-of-sale. Often times advisors assume that the client understands all the jargon and investment terminology, but this is not the case, she says. Clients, rather, should be explained things using analogies and simple-to-understand language.

“When people talk to consumers, it is with a view to turn every consumer into a very engaged self directed investor,” remarks Ms. Vince. Using the comparison of shopping for a diamond, she explains that clients want to know the fundamental basics – the cut, the quality, what makes one more precious than another – and not to become expert diamond sellers. “Our objective is to educate them enough to be good consumers.”

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