New way to protect embedded commissions

New way to protect embedded commissions

New way to protect embedded commissions A veteran advisor is suggesting the way to keep embedded commissions around is to cap them across the board, removing the discretion of fund providers looking to entice players with higher compensation.

“I believe that in capping embedded commissions, regulators would be protecting clients from advisors who make their investment decisions based on higher commissions with one fund as opposed to another,” says a lifetime veteran of the industry and an IIROC advisor.

It’s a well thought out plan including extending to specific caps on any and everything from equities to balanced and bond funds.

Specifically, the advisor would like to see regulators cap trailers on equities at 1 per cent, balanced funds at 0.50 per cent and bond funds at 0.25 per cent.

The model is being proposed as an alternative to the fee-based remuneration the industry seems hell bent on mandating says the Kitchener, Ont., advisor. That model would effectively limit access to advice for those with modest investable assets under their belt. That’s a reality because advisors, under the fee-based model, are all but forced to focus on high net worth clients.

Capping commissions would also get around the objections clients – across all income levels – have to sticking their hands in their pockets to pay advisor fees.

The CSA is under increased pressure to curtail the use of embedded commissions by some investor advocates suggesting the client is never best served when advisors are paid for shifting product instead of offering sound advice. It’s a point that most wealth professionals call ludicrous. Capping may be the best way of protecting some form of embedded commissions given the experiences of advisors in the UK and Australia.

“Do you want the regulators to regulate all compensation exactly like they used to for stocks?” says the advisor. “No.”
  • David Barnsdale 2015-05-28 11:40:32 AM
    get rid of embedded trailer fees/commissions etc. Let all fees be transparent and fully disclosed and up to advisors to negotiate the fees they charge based on value they bring to the table. Interesting that this advisor doesn't want their name disclosed so that says a lot as well.
    Post a reply
  • Lynda Weinrib 2015-05-28 12:10:22 PM
    It is about time! BUT this must be across the board, including bank funds and segregated funds!
    Post a reply
  • Next Generation 2015-05-28 12:28:38 PM
    I would be interested to see this individual's ideas on fee based accounts and whether they should be capped also? How is their practice currently structured? Fee-based? I really don't see how advisors out there are getting away with charging 1.5-2.5% on 'fee-based' accounts for smaller clients holding $150,000-250,000. And this 'fee' is on all f-class funds in most cases - equities, balanced, and bond funds. As always, provided the client knows what they are paying for the advice they are receiving, I believe there shouldn't be any type of restrictions on the current embedded set up.
    Post a reply