If the Canadian Securities Administrators (CSA) does place a ban on embedded commissions, it will be up to the advisor community to keep its collective eye on managing the transition, says the head of the Investment Industry Regulatory Organization of Canada (IIROC).

Andrew Kriegler also told a recent conference put on by the Investment Industry Association of Canada (IIAC) that while there are many divergent views on whether embedded commissions should be banned, the topic itself has not caused great anxiety among advisors. But if a ban on these commissions becomes a reality, everyone has to work to make it happen.

Anecdotal feedback

“The anecdotal feedback that I’ve received from front-line advisors across the country is that there is not the degree of angst about this potential change as there might be in some other places,” said Kriegler. “It’s not to say that some people aren’t concerned about it – they absolutely are. [But] I think that if it does happen, the focus has got to be on how the transition is managed because I think that will be an important, significant change.… You don’t want anyone unintentionally hurt as a result of that.”

The Investment Funds Institute of Canada (IFIC) has been at the forefront of suggesting to regulators that banning embedded commissions “will have long-term negative impacts on the ability of Canadians to plan and save, leaving them with substantially lower levels of assets to fund their retirements.” Paul Bourque, president and CEO of IFIC, has said repeatedly that investors are not as likely to get financial advice if they have to pay for it up front.

Patriarchal viewpoint

But Kriegler dismissed those who say banning embedded commissions will mean smaller investors will be disenfranchised.

“I think that is a potentially pretty patriarchal point of view, that they can’t make decisions on their own.”

Direct-pay agreements

For its part, the IIAC believes regulators should find ways to eliminate compensation-related conflicts, but does not believe that investors will pay less through direct-pay agreements than they do with embedded commissions.

In its latest submission to the CSA, the IIAC also said most investors will not have the ability to negotiate payment for certain services, saying that fee-based is almost exclusively for “savvy, high net worth clients and certainly not ‘mass market’ investors.”

The CSA is expected to make a decision on embedded commissions within a year.

Targeted reforms

In the meantime, Kriegler said views on targeted reforms, especially on best interest, remain divided across the country. Ontario and New Brunswick remain in favour of the standard, but British Columbia, Manitoba, Alberta and Quebec are against it.  The CSA has recognized, he said, that many of the targeted reforms are already covered by IIROC or the Mutual Fund Dealers Association of Canada (MFDA).

“We’re very sensitive, not only to the cost of regulatory compliance, but the feasibility of compliance,” said Kriegler. “If you’re going to make changes, if you are going to put requirements on firms and advisors, they have to be able to comply with them. And it has to work.”

Ian Russell, president and CEO of the IIAC, said the CSA promised it would step back from the targeted reforms and assess whether current rules are working as they were intended.

Not an easy task

But Kriegler said the idea of a cost-benefit analysis on every potential reform is not an easy task to accomplish. He said one of IIROC’s priorities is to look at the body of regulation that is out there, particularly the level of regulation that applies across different platforms in the industry to see if they are working, but added this has to be done on a step-by-step basis.

Kriegler said IIROC is doing its best to close vulnerabilities for large and small firms in areas such as cyber risk. For example, he said, IIROC worked with the industry during a recent cyber scare to provide patches and be part of the solution to the issue.