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Regulators say DSC Seg funds risk poor consumer outcomes

“Separate fund contracts and mutual funds are products with similar characteristics, including certain compensation and fee structures,” the two said in a joint statement last Thursday. “CCIR and CISRO are of the view that the sale of segregated funds carries a high risk of poor consumer outcomes associated with DSCs and this form of sales charge is not conducive to treating customers fairly.”

‘We were pleasantly surprised’

While CCIR and CISRO acknowledged regulatory arbitration along with potential conflicts of interest and risks of misalignment of services provided and costs involved in using DSCs for seg funds, they did not say that they are yet to do so. banning the practice. Instead, the insurance regulator “[urged] Insurers should refrain from new DSC sales in segregated fund contracts in line with the restrictions in securities of June 1, 2022,” they said, adding that they expect a transition to stop such sales by June 1, 2023.

For Ken Kivenko, president of investor advocacy group Kenmar Associates, the ban couldn’t come soon enough.

“We were pleasantly surprised to hear the announcement,” says Kivenko. “We submitted papers, analyses, research and anonymous cases showing the harmful effects of DSC Seg Fund. I don’t know what led to this announcement, but we have to commend the regulators for acknowledging that they are inappropriate, and saying they will take care of it.

Kivenko noted that the DSC ban for mutual funds is set to go into full effect on June 1, but the products will still cast a six-year shadow for investors. He says investors who buy funds that are sold before that deadline will be subject to the normal DSC schedule for those products, meaning they won’t wait until 2028 to make redemptions on those products. Inadvertently take the risk of paying the fee.

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