Embedded commission guys: Don’t rush trailer fee review

Embedded commission guys: Don’t rush trailer fee review

Embedded commission guys: Don’t rush trailer fee review In an ironic twist, embedded-commission advisors are standing with the OSC in appearing to reject calls for a speedier review of trailer fees.

“I disagree wholeheartedly with the (idea of bypassing) the studies to determine the true consequences of banning commission-based advisors,” said Harley Lockhart, a wealth advisor at Quail Ridge Financial Services. “It’s one of the few things the OSC has done right and there is still no evidence to support a ban like this other than the ‘regulatory wave’ they point to, which is ridiculous. The OSC should investigate and complete the studies as intended.”

His comments come after the Investor Advisory Panel , which advises the OSC on investor protection issues, said that the OSC failed to address “inadequate and outdated regulatory standards” on investing advice and urged quick action to provide “fair, independent complaint handling.”

"We remain concerned that measures which could significantly improve investor protection continue to languish, subject to additional review and study, absent any specific commitments to action", said IAP Chair Connie Craddock in a release addressed to OSC Chair Howard Wetston.

While the panel is urging quick action against commission-based advisors the OSC is standing firm, waiting for the results of the studies before following the global regulatory wave banning embedded commissions, or trailer frees.

Critics have said that the payments provide embedded-based advisors with extra incentive to lock investors into funds that yield the highest trailer fees, as opposed to doing what’s best for the investor.

“Embedded commissions are nothing more than tied selling. Prohibiting these sales commissions will be an important step in transforming salespersons into professional advisors,” said Ken Kivenko, in a recent comment on a WP article. “This will help ensure more secure retirement incomes for Canadians.

“Independent academic research has shown that sales commissions can and do twist recommendations and that's not counting quotas and commission grids. A best interests-standard for advice givers is the only path to professionalism.”

However, Lockhart says there is no tangible evidence to justify these sentiments and believes that the attack against commission-based advisors is “illogical.”
  • Doug 2015-03-12 11:32:56 AM
    I agree with Harley and it appears that the fee only camp thinks everyone who uses commission is just a salesman, taking advantage of the public. Has there been any study done asking the public what they would prefer; monthly fee based on assets, embedded commission or fee based on service paid for either by commission or fee? A lot of the problem with embedded commission is at head office and the way they structure the product. Should a mutual fund that started at 100 million still be charging the same MER when it reaches five billion in assets? Should DSC exist, as a 5% commission upfront and 7 year penalty seems excessive. And finally it seems that CRM is only dealing with a portion of the financial industry; what about PPN's, seg funds, life insurance (yes I know the CSA only regulates securities but the four pillars have supposedly fallen and maybe it's time to make the playing field level).
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  • Dan Allen 2015-03-12 11:35:35 AM
    I have a combination of fee-based and commission based clients and adapt according to their needs.
    Why has this become an "all or nothing" debate? If there is an issue about objectivity, why not legislate all trailers at the same rate (not 0%) and eliminate the real objection.
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  • Will Ashworth 2015-03-12 11:44:06 AM

    It's quite possible that regulators won't do anything about embedded compensation making this discussion moot.

    The problem with trailer fees is that they don't ensure the advice paid for is actually given.

    If there was a way to guarantee this I'm sure embedded comp wouldn't concern regulators.
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