IIROC calls on discounters to resolve trailer-commission conflicts

Rebates if necessary, but not necessarily rebates.

Rudy Luukko 11 April, 2018 | 5:00PM

The Investment Industry Regulatory Organization of Canada (IIROC) has served notice to no-advice discount brokers that collecting full-service trailer commissions from mutual-fund companies is unacceptable. Less clear is what discounters will need to do to comply. Also uncertain is whether the self-regulatory organization's initiative on behalf of self-directed investors will be overtaken by events because of the possibility of a nationwide ban on all embedded mutual-fund commissions.

In a notice to member firms released on April 9, IIROC said order-execution-only (OEO) brokers must address compensation-related conflicts of interest concerning mutual-fund sales. But IIROC is leaving it up to the discounters to come up with the appropriate remedies.

The conflicts arise because mutual funds that pay full-service trailers -- typically 1% a year for equity and balanced funds and 0.5% for fixed-income ones -- are far more profitable for discounters to hold in their clients' accounts than those that pay much lower trailers or that pay no compensation whatsoever to them.

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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.

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