Embedded commissions: It’s a good news, bad news situation says expert

Embedded commissions: It’s a good news, bad news situation says expert

Embedded commissions: It’s a good news, bad news situation says expert 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.”
  • Ken MacCoy, CHS 2015-09-04 11:26:28 AM
    This way it allows both advisors & investors to have a choice: Embedded commissions or fee for service. Makes perfect sense to me.
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  • Russ 2015-09-04 11:31:11 AM
    How strange. I read this article and thought that this was a bad news good news story. Bad news that we might retain embedded commissions and good news that DSC funds are likely on the way out. I am convinced that the financial advisory business is being profoundly disrupted by the advice-only and robo-advisor business models and that this change is for the benefit of investors. Don't write articles that seek to defend a broken model.
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  • Debbie Hartzman.CFP.CLU.CDFA.TEP 2015-09-06 8:55:52 AM
    As far as DSC is concerned it is already a bad word. If you do the math, LL or FE is a much more beneficial compensation method. The problem is that it will have the effect of limiting new advisors coming into the business. If you are a seasoned advisor, the higher up front trailer begins to make much more sense because of the higher re-occurring income stream. New advisors need the up front commission to survive.
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