Advisor: Why I support the ban on embedded fees

Advisor: Why I support the ban on embedded fees

Advisor: Why I support the ban on embedded fees When the CSA launched a consultation paper outlining a possible ban on embedded commissions and trailer fees back in January, a fiery industry debate commenced and it shows no signs of fizzling out. In anticipation of receiving a deluge of responses, the CSA set a longer than usual consultation period of 150 days; a period that comes to an end in early June.

The proposed ban has been met with strong opposition from various industry insiders and bodies, many of whom are currently preparing submissions to send to the CSA. The Investment Funds Institute of Canada, for example, called on the CSA to “reconsider whether there is evidence of a market failure sufficient to justify prohibiting embedded commissions.”

“If regulators have concerns about specific sales misconduct, existing rules give them the enforcement tools they need to address the concerns they have identified,” Paul C. Bourque Q.C., IFIC president and CEO, said. “As a result, we are asking the CSA to reconsider whether a prohibition on embedded commissions is the only option.”

Many in the industry sit on the other side of the debate, including Jennifer Black, a Private Wealth Manager and Portfolio Manager at DFS Private Wealth. Black currently runs a fee-based practice and likes the idea of banning embedded fees.

“I like the first step regulators took with starting to disclose fees a little more clearly to clients, but there is still an element that is not fully disclosed,” says Black. “Hopefully the next step is banning embedded fees.”

Black believes that, under the current rules, many investors are unaware of the true costs they incur and how they are calculated. “If there are embedded fees which are not paid as commission to the dealership, the actual embedded cost is not being disclosed,” Black says. “That makes it difficult for investors to know what their true costs are.”

Black sees a discrepancy in the industry between advisors who build holistic strategies and plans for the long-term and those who simply focus on selling products and accumulating assets. “Those advisors who are just sales people and don’t add value from a servicing perspective might retain those assets for three or four years, but, going forward, they are going to find it very difficult to hold onto clients in this industry,” she says. “In a world with no embedded fees their compensation will go down if they’re not adding the value that will warrant their clients to go fee-based. You need to provide service for that.”


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