Investor rights group weighs in on proposed trailer abolition

The advocacy group has shared their views on the CSA’s consultation on eliminating embedded commissions

Investor rights group weighs in on proposed trailer abolition

Shortly after the CSA released their Consultation Paper 81-408 discussing the possible elimination of embedded commissions, FAIR Canada signaled their support for such a measure.

“The removal of embedded commissions is a key investor protection initiative that we want to see happen,” said FAIR Canada COO and Director of Policy Marian Passmore in an interview with Bloomberg TV Canada. “We see that as part of addressing conflicted compensation structures, and that would be part of any best interest standard that would [be put in place], so they go together.”

Some industry representatives have said that middle-income and smaller-income investors will be hurt by the measure, opting out of financial services because higher fees, but the group does not share that concern.

“We, like the consultation document [from the CSA says] don’t believe that there will be an advice gap,” Passmore said. “We think that those types of investors are being poorly served right now; they’re not getting objective advice at the moment and the changes will allow them to actually be better off.”

Upon being asked what FAIR Canada thinks is the most preferable model of compensation, Passmore started by saying that embedded compensation is contrary to investor interests. “We don’t think embedded compensation is an appropriate way to [charge] investors because it leads to misaligned incentives.

“Fee-based compensation has some potential for conflict,” she went on, pointing out that there’s a risk of churning, or repeated charging of fees for services of limited value. “There have to be alternatives to that, and investors have to know and be able to shop around for the type of service that is beneficial to them.”

Passmore emphasized the importance of transparency in investor protection. “[O]ne of the things we want to see is clear disclosure before entering into a relationship with an advisor or firm as to what the services and advice will be and what you’ll be paying for.”

Related stories:
Mixed reactions to proposed ban on embedded commissions
CSA invites comments on proposed embedded fees ban