With the UK’s Financial Conduct Authority taking a second look at its regulatory overhaul, there’s speculation that the same thing will happen here in Canada before any move to ban embedded commission.
The good news, says former IIAC executive Barb Amsden, is embedded commissions will likely stick around.
“I don’t see the mandated end of embedded commissions,” Amsden said. “The international experience in the U.K. and Australia is emerging, and it suggests there are as many challenges for investors if embedded commissions are banned.”
A refrain that’s been heard many times from Advocis and others is that in an effort to make financial advice more professional they’re putting average Canadians at risk.
“Efforts to ban embedded commissions, with other regulation, are done in the name of retail investors, but many investors don’t know what they’re losing. Already minimum investment amounts are rising due to the high cost of onboarding and money-losing first year(s) of a relationship,” Amsden told WP. “But if they are asked to pay for advice separately, studies show they will pay little, or they may cut that amount if in financial hardship: advice is – or rather appears to be – dispensable.”
And here’s where the bad news comes to pass.
Amsden believes embedded commissions will survive any regulatory examination but she’s not nearly as certain about DSCs.
“Much opposition to embedded commissions is due to no or poor disclosure, especially in the case of DSCs (which many could see banned),” said Amsden. “CRM2 pre-trade disclosure and annual fee reporting should address these concerns.”