Trailer commission ban would hand more clout to banks

Regulators' upcoming decision will impact the competitive balance of the fund industry.

Rudy Luukko 19 June, 2018 | 5:00PM

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.

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About Author

Rudy Luukko

Rudy Luukko  Rudy Luukko is a freelance writer who contributes to Morningstar.ca on topics involving fund industry trends and regulatory issues. He retired in May 2018 from his position as editor, investment and personal finance, at Morningstar Canada, where he had worked since 2004. He has also worked as an editor and writer for various general, specialty and institutional media, and he has co-authored courses for the Canadian Securities Institute. Follow Rudy on Twitter: @RudyLuukko.