The ban on embedded commissions in the UK has resulted in a shrunken advisory sector that is not serving small clients, argues Joanne De Laurentiis, president and CEO of The Investment Funds Institute of Canada. Canadian regulators should resist any urge to follow suit. Here's her argument.
Embedded advisor compensation is an important option for Canadian investors, given the unique aspects of our market. It should be preserved alongside the option of paying separate fees for advice.
The most unique feature of our market is the availability of advice to everyone, including small investors who might otherwise not have access to professional investment services. Public surveys have shown that almost 60% of Canadian mutual fund investors first go to an advisor when they have under $25,000 to invest; more than 40% seek advice with less than $10,000.
Average accounts are $35,598 for MFDA-licensed advisors and $67,078 in the IIROC channel. In jurisdictions such as the US, where fee-for-advice is the dominant structure, advisors have a declining interest in clients with smaller portfolios and some firms penalize their advisors for holding accounts below a certain size.