Embedded commission advisors facing new pressure?

Embedded commission advisors facing new pressure?

Embedded commission advisors facing new pressure? Investor advocates are now echoing a concern first voiced by embedded commission guys worried clients could be forced over to the fee-based model.

The latest quarterly report from one of Canada’s best known investor advocates alleges some investment firms are now presenting commission-based clients with an ultimatum: move over to fee-based model or find another firm.

“I think it’s going on massively. I know people are fighting back but most of them roll with it [conversion to fee-based] because they’re sick or travelling and don’t know,” Ken Kivenko, founder of Kenmar Associates and member of the OSC’s Investor Advisory Panel. “It’s going to make big money for the banks. (I think) mostly the banks are doing it.”

The first page of Kenmar’s Q3 2015 investor protection report delves right in to the issue suggesting the forced conversion of commission-based accounts is starting to ramp up in the march to full CRM2 implementation. It’s an alleged trend Kivenko doesn’t yet have data to back up.

Still, he personally has experienced it, he told WP.

But rather than pay fees four times what he’d been used to under a commission structure, Kivenko became a do-it-yourself investor, moving his account after more than two decades with the same broker. He worries many investors will simply go along rather than challenge the direction of advisors themselves being encouraged to transfer as many of their accounts over ahead of CRM2.

On a million-dollar account where a commission-based client has minimal turnover the fees generated might come to $1,200 annually, Kivenko contends. Put those same assets under a fee-based model and the revenue jumps to between $10,000 and $20,000.

“Really, in a way it’s an unsuitable recommendation,” Kivenko said. “If IIROC was sharp they would say it’s not only recommendations to buy or sell or even to borrow that are unsuitable but also putting someone in the wrong type of account is unsuitable.”

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