On January 10 the Canadian Securities Administrators (CSA) will begin consultations about prohibiting embedded commissions. The Investment Funds Institute of Canada (IFIC) suggests there is not enough evidence to justify the move.
As we reported earlier, the CSA is about to begin consultations about whether or not they should do away with commissions. In a statement released yesterday, IFIC commended the CSA for undertaking compliance surveys and examining compensation practices in the industry, but suggests that there is not enough academic research either here or abroad to warrant the change.
IFIC president and CEO Paul Bourque says that the recent CSA review of compensation practices confirms the industry’s position that almost every form of compensation holds the potential for conflict of interest. But as far as Canadian mutual funds are concerned, he argues that the issues are thoroughly addressed by rules that are already in place.
Reconsider the prohibition on embedded commissions
IFIC points to another compensation study released by the Investment Industry Regulatory Organization of Canada (IIROC) last month which found that higher compensation paid on fee-based accounts could actually end up encouraging advisors to move their clients away from commission-based accounts even when it might not be in the clients’ best interests.
“None of the findings of these compensation reviews support the case for a ban on embedded commissions. If regulators have concerns about specific sales misconduct, existing rules give them the enforcement tools they need to address the concerns they have identified," says Bourque. "As a result, we are asking the CSA to reconsider whether a prohibition on embedded commissions is the only option."