UPFRONT
HEAD TO HEAD
Is it time for Canada to ban embedded commissions? The CSA has started making moves toward an embeddedcommission ban, but many advisors feel it’s not warranted
Thane Stenner
Brent Vandermeer
Director StennerZohny Investment Partners
Portfolio manager and director Vandermeer Wealth Management
“This issue should be investor-driven, not regulatory-driven. I simply don’t see the demand coming from investors to ban trailer fees. To ban trailer fees without seeing verifiable investor demand doesn’t seem logical. So long as advisors are properly and fully disclosing trailer/service fees on mutual funds, and the majority of investors seem to be accepting of this, there is no need to ban them. With CRM2 coming in, investors will see fees flowing back to the investment advisory firm along with their annual performance data. Full and complete transparency is what is needed, not a fully changed business model.”
“Canada shouldn’t blindly follow other countries. Our situation is unique – all the different provincial commissions, regulators and types of registrations require a careful and strategic solution. That said, it goes without saying that clarity on fees and costs is a no-brainer. Clients should know this information, and most won’t dig into the details themselves to find it. As an industry, we should continue to move toward greater transparency in an effort to build trust and alignment with our clients. Nonetheless, haphazardly banning from one segment of the market without proper study and careful nuanced implementation would be foolish.”
Christopher Dewdney Principal Dewdney & Co.
“The consumer should be able to choose their own [fee] structure. What you will find, however, is that the more affluent client will probably opt for fee-for-service while the mid- to low-income client will opt for the opposite. Without choice – and if the regulators go for the ban – my fear is that you will see a mass exodus of advisors, which would hurt not only the consumer, but the industry as a whole. The people who would need the advice the most would not be able to afford it, with the remaining advisors and firms only focusing on larger, more profitable accounts.”
A DONE DEAL? The Canadian Securities Administrators revealed this summer that it plans to gather industry comments in the fall on a proposed policy to ban embedded commissions on mutual funds in favour of a fee-for-service model – a course of action that has already taken root in Australia and the UK. Despite widespread outcry from the industry, Ontario Securities Commission vice-chair Grant Vingoe, speaking in an interview shortly after the statement was released, seemed to consider the banning of such fees a certainty: “We’re very open to commentary that addresses how we should do it and how the industry would transition from the present situation to these direct pay arrangements,” he said.
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