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Provincial securities regulators across the country are moving to ban the sale of mutual funds that pay upfront commissions to financial advisers and charge clients early withdrawal fees, with one notable exception.

All regulators except the Ontario Securities Commission will take steps in early 2020 to prohibit the so-called deferred sales charges in the interest of “investor protection and market efficiency,” said the Canadian Securities Administrators, an umbrella organization for the country’s 13 securities watchdogs.

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All provinces and territories, including Ontario, will also move to ban certain advisory commissions where investors receive no advice.

A “fairly small subset of products” will be impacted by the change to advisory fees, said Jeremy Walsh, a spokesman for the Northwest Territories securities office. Investors are increasingly shifting toward do-it-yourself online trading and exchange-traded funds, where fees are lower.

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Deferred sales charges are fees clients pay when they fail to retain a mutual fund for a given time period, usually between five and seven years.

Upfront commissions and deferred fees are applied regardless of how a fund performs.

The Ontario Securities Commission said it is considering some restrictions on deferred sales charges “to mitigate negative investor outcomes.”

The potential restrictions include banning sales to seniors, prohibiting the use of borrowed money to buy the funds and limiting the account size.

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“We want opportunities to be available for all types of investors, while balancing the need to ensure investors are protected, and are using products that are right for them,” Emily Hogeveen, press secretary for Ontario Finance Minister Rod Phillips, said in an email.

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Before taking effect, the two bans will span a transition period of at least two years, the Canadian Securities Administrators said.

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