Mutual-fund industry wants federal ads axed

Tuesday, February 3, 2004

INVESTMENT REPORTER

Canada’s mutual-fund industry is locking horns with the federal government, charging that an advertising campaign by one of the government’s agencies is scaring away investors at the height of the RRSP season — just when fund sales are recovering after a nasty slump.

At issue is a TV and print campaign launched Jan. 19 by Canada Deposit Insurance Corp. the federal agency that insures deposits at banks and trust companies. The ads remind investors that mutual funds are not insured by CDIC.

Tom Hockin, head of the Investment Funds Institute of Canada, fired off a letter to CDIC demanding that it pull the campaign, which he said encourages people to invest only in bank accounts or GICs [guaranteed investment certificates], which now pay some of the lowest returns in modern history.

We have received reports of clients and investors calling their financial adviser because of fears created by these ads, he wrote to CDIC chairman Ron Robertson.

Surely this is not a responsible approach by an agency of our federal government.

But the Crown corporation is refusing to yank the ads, saying it is only trying to educate consumers about deposit insurance, not steer them away from mutual funds.

I just couldn’t believe it, CDIC president and CEO Jean Pierre Sabourin said after reading Mr. Hockin’s comments in a press release yesterday.

We’re not saying don’t invest in mutual funds. We’re saying they’re not insured.

CDIC, which insures deposits for up to $60,000 if a financial institution fails, decided to launch the campaign after research found that the public has a poor understanding of what is covered by deposit insurance, he said.

In a CDIC survey, 34 per cent of respondents said they believed — erroneously — that mutual fund investments are insured against losses, when in fact their prices fluctuate with market conditions.

Another 40 per cent said they did not know whether these investments were insured against losses.

So, 74 per cent of the population is not well informed about the insurability of mutual funds, he said.

We’re not going to pull the ad, because we remain committed to fulfilling our mandate to inform the public about what is and what is not insured by CDIC.

CDIC isn’t singling out mutual funds, he added. Another ad in the campaign notes that stocks and foreign-currency deposits aren’t insured.

He said CDIC has been communicating similar messages for years, in ads, brochures and on its website. It also offers a toll-free number where consumers can get information.

Mr. Sabourin pointed out that IFIC’s own website reminds investors that mutual funds are not protected.

The fact that investors are calling their advisers after seeing the CDIC ads proves that the spots are having the desired effect, he said.

Mr. Hockin said CDIC has every right to educate consumers, but airing ads in the middle of RRSP season is puzzling.

He suggested that CDIC members more clearly explain in point-of-sale materials what is and isn’t covered by insurance, rather than waste money making up for their mistakes through media advertisements.

He added that mutual funds don’t require CDIC-style insurance.

Whereas insurance protects depositors if a financial institution collapses, the failure of a company that sells mutual funds would not affect the value of the stocks and bonds that the funds have invested in, because those securities are held in trust on behalf of investors.

This fact mitigates the need for any CDIC style of protection.

Mr. Hockin, a former federal Tory cabinet minister, said he intends to raise the matter with deputy minister of finance Kevin Lynch, who sits on CDIC’s board.

2007 The Globe and Mail. All rights reserved.