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Investor advocates are expressing frustration that fund companies are still able to charge early-withdrawal fees on mutual funds, nearly a year after securities regulators concluded they should be banned.

The renewed calls for action come after fines were levied against certain advisers who improperly sold the products to senior citizens who had no idea they were subject to the fees.

“It’s preposterous how long this process is taking,” said John De Goey, a portfolio manager with Wellington-Altus Private Wealth.

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Last fall, after a six-year review, provincial securities regulators proposed a prohibition on what are known as deferred sales charges (DSCs), a fee investors must pay when they pull money from their mutual fund before a set date. Shortly after, the Ontario government released a statement opposing the ban on DSC funds.

“The proposed amendments result from a process initiated under the previous government and, if implemented, will discontinue a payment option for purchasing mutual funds that has enabled Ontario families and investors to save towards retirement and other financial goals,” the statement said. “Our government does not agree with this proposal as currently drafted.”

The Progressive Conservative government never elaborated exactly how the new proposals would hinder such efforts to save. But its opposition stalled the planned reforms, and immediately raised the possibility that no changes would take place.

During a cabinet reshuffle last month, Ontario’s new Finance Minister Rod Phillips said in a media interview the government will continue to focus on priorities detailed in its budget but will “correct mistakes” when it makes them.

Investor advocates were hoping the announcement made last September by his predecessor Vic Fedeli – that essentially killed the regulatory reforms – would be one of those “mistakes."

But Scott Blodgett, a spokesperson for the Ministry of Finance, recently told The Globe and Mail there has been “no change in direction” when it comes to the government’s stance in opposing the mutual fund proposals.

“We continue to work with other provinces and territories and stakeholders to ensure fair, efficient capital markets and strong investor protections," Mr. Blodgett said in an e-mail.

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Doug Walker, senior policy counsel at FAIR Canada, an advocacy group for shareholders rights, expressed disappointment that the new minister is standing by the government’s position to oppose the proposals, which were issued by the Canadian Securities Administrators (CSA), an umbrella group for all provincial securities regulators.

“The government had previously said last September it was going to propose alternatives but there’s been no indication what that means in terms of these needed reforms and what the government’s time frame is. In the meanwhile, investors continue to be abused by these deferred service charges.”

"Any further delay is a slap in the face to individual investors,” Mr. Walker said.

Regulators are still deciding what the next step will be when it comes to selling DSC funds.

Despite the Ontario government’s opposition last fall, the CSA continued the 90-day comment period right through to its conclusion in December. The Ontario Securities Commission (OSC) is still in the process of reviewing the comments received, said a spokesperson.

In the meantime, the misuse of DSC funds continues to emerge. Earlier this month, Philip Winer, a former investment adviser in Ontario, received a $15,000 fine – and was asked to return $2,000 in commissions – for improperly selling DSC funds to clients in 2012 and 2016. Some of those clients were senior citizens without long investment time horizons.

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Known as “sandwich trading," Mr. Winer – who was employed with Burgeonvest Bick Securities Ltd. at the time – sold DSC funds in his clients’ accounts, and then a short time later used those proceeds to buy and sell equities. Within a short time frame, he would then move the money into new DSC mutual funds for the client, triggering new commissions for himself. In several cases, clients were charged redemption penalties.

“Most of these enforcement actions are overwhelmingly against individuals and many of the cases [we see] are similar to this," said Ken Kivenko, a prominent investor-rights advocate who assists victims of financial crimes. “But where was the supervisor on this? How do so many bad things happen, for so long, with no one within the firm noticing?”

Burgeonvest was bought by Industrial Alliance Securities Inc. in 2016.

Last May, the Mutual Fund Dealers Association (MFDA), which oversees mutual fund firms and financial advisers, held Investors Group Financial Services Inc. accountable for an adviser’s improper use of DSC funds in 2013 and 2014.

Investors Group paid a $150,000 fine and $15,000 in costs to settle allegations that it violated MFDA rules by failing to adequately supervise the suitability of two clients, both of whom were more than 90 years old, being sold DSC funds with seven-year redemption schedules.

“Regulators did not go far enough in the proposals and ban all types of commissions for mutual funds, but they at least moved in the right direction with [the proposal to ban] DSCs,” Mr. De Goey said.

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“Unfortunately, we have one provincial government that is taking a step backward.”

For the coming year, both the CSA and the OSC have included the proposed rule changes for embedded commissions on their priority lists. The CSA says it will look at solutions to “mitigate the conflict of interest and related investor harms arising from the use of the DSC purchase option.”

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