Regulators preserve embedded fees and self‑regulation to protect limited advice for small accounts
Canada found a way to keep modest investors in the advice ecosystem while other markets opened up an “advice gap” – and it did it by refusing to blow up the economic model that actually serves small accounts.
According to a new CD Howe Institute e‑brief by Paul Bourque, Canada outperforms many OECD peers in providing widespread, affordable access to “limited” or “one‑time” investment advice for households with modest assets.
The paper credits a distinctive mix of front‑line self‑regulation, a dedicated mutual fund dealer regime, and flexible compensation structures that keep advice viable at low or even zero up‑front cost.
Bourque defines the “modest investor” as a household with less than $100,000 in financial instruments and investments held to build and preserve wealth.
Recent surveys he cites show that most advised investors in Canada sit at or below that $100,000 mark.
Mutual fund dealers and provincially licensed representatives have been central to serving this group.
As per the former Mutual Fund Dealers Association’s 2022 client research, these dealers serve about 9.4 million Canadian households, 78 percent of which hold under $100,000 in financial wealth, with average wealth around $89,000.
Research highlighted in the e‑brief links advice directly to outcomes.
According to work by Claude Montmarquette and co‑authors, Canadians with a financial advisor accumulated between 2.3 and 3.9 times more assets over 15 years than comparable non‑advised investors, thanks to higher savings rates, a greater allocation to non‑cash holdings, and more disciplined behaviour.
The paper also notes that advised investors are more likely to “stay the course” in turbulent markets.
That advice sits within a fund market that has scaled up sharply.
Between 1982 and August 2025, Canadian investment fund assets grew from $4bn to more than $3tn, according to statistics from the Securities and Investment Management Association cited by Bourque.
Investment funds are estimated to represent about half of the $2.1tn in financial assets held in voluntary individual retirement plans.
OECD national accounts data referenced in the e‑brief show that Canadians hold a larger share of their financial assets in investment funds than investors in the UK or United States.
On the regulatory side, Bourque points to the 81‑series of National Instruments as the core framework for publicly offered retail funds, with plain‑language disclosure, risk limits and “Fund Facts” and “ETF Facts” documents that must be delivered before purchase.
Client‑focused reforms and total cost reporting under National Instrument 31‑103, scheduled to take effect on December 31, 2026, aim to give modest investors clearer information on conflicts, performance and fees.
Canada’s dedicated mutual fund dealer category also matters.
The e‑brief notes that Canada is the only OECD country with a registration class restricted mainly to investment funds.
Mutual fund dealers face many of the same conditions as investment dealers, but rules are tailored to their narrower activities and exclude some exchange‑trading and margin requirements.
According to Bourque, that limited scope lets them operate with lower operational and compliance costs than full‑service dealers.
Self‑regulation is the other pillar.
After Glorianne Stromberg’s 1995 report flagged weak oversight of mutual fund dealers, the Canadian Securities Administrators authorised the Mutual Fund Dealers Association in 1998 as a self‑regulatory organisation.
Subsequent consolidations led to today’s Canadian Investment Regulatory Organization (CIRO), which now provides front‑line regulation for investment dealers and mutual fund dealers across the country.
The e‑brief stresses that statutory recognition orders, independent‑majority boards, annual CSA oversight reviews and enhanced enforcement powers allow CIRO to combine industry expertise with public‑interest accountability.
Compensation policy is where Canada decisively diverged from several peers.
The e‑brief explains that Canadian investors can pay for advice on funds through an up‑front commission, an ongoing fee embedded in the management expense ratio, or an ongoing account fee.
Embedded commissions include trailer fees and, historically, deferred sales charge commissions; the CSA banned DSC mutual funds effective June 1, 2022.
After extensive consultations, the CSA chose not to ban embedded commissions outright.
Bourque reports that regulators concluded a full ban would push advisors toward explicit account fees that small investors would be less able and willing to pay, undermining access to advice.
Instead, they targeted abuses by banning embedded commissions in DSC funds, prohibiting embedded payments to order‑execution‑only dealers, and tightening disclosure and conflict‑of‑interest rules.
By contrast, the e‑brief notes that the UK, Australia and the EU (for non‑bank distributors) banned embedded commissions, then struggled with gaps in access for less affluent investors.
According to Bourque, these experiences underline how hard it is to restore limited advice for modest investors once regulators dismantle the compensation model that supported it.
The paper closes with three main takeaways for policymakers: seriously examine CIRO‑style self‑regulation for insurance distribution; put more weight on competition and efficiency, not just consumer protection, when designing rules; and run fuller, more realistic consultations so new regulations are both necessary and implementable.
