With Canadian securities regulators' policy decision on the fate of embedded fund commissions likely only a few days away, the big question is: Will they or won't they announce plans for an outright ban?
As has been well documented, trailer commissions and other embedded compensation create potential conflicts of interest between advisors and their clients and raise the costs of owning funds. And even with new annual disclosure requirements, embedded commissions remain less transparent than fee-based accounts that generally provide monthly disclosure. The United Kingdom and Australia have banned embedded commissions. Why not Canada?
The most common argument cited by opponents of a trailer-commission ban is that it would create an "advice gap" as advisors abandon small accounts that become uneconomic to serve under fee-based arrangements. However, I believe that gap would only be temporary, since small investors would still have access to multiple alternative providers of either the bricks-and-mortar or online variety.
