The experience of banning embedded commissions in Australia and the U.K. did not create an advice gap, investor advocates say.

Rather, they say there’s already an advice gap that the Canadian Securities Administrators should close: the one between independent and partial advice.

“Far from creating an advice gap, the banning of embedded commissions in the U.K. and Australia has led to positive strides forward,” the OSC’s Investor Advisory Panel (IAP), a committee representing investor interests, says in a comment letter for the CSA’s consultation its proposal to ban embedded commissions.

The IAP says that after the U.K. banned embedded commissions, the country’s Financial Conduct Authority conducted a post-implementation review that found “the ban had reduced product bias from advisor recommendations and led to better investor outcomes.”

The panel says CSA is in a position to fix “the only advice gap that needs to be urgently closed”—the one “between independent and compromised advice.”

Financial advisors have told CSA they are concerned that losing embedded commission income would cause advisors to drop out of the industry. They argue cheaper, robo services and factor investing alternatives will not fill this gap—pointing to research showing that advisors offer clients investing discipline and financial plans that help them save more.

Read: CSA’s embedded commissions ban falls short for clients, say advisors

IFIC, representing investment funds, has also been pushing back against a proposed ban, arguing it won’t eliminate other compensation conflicts and that it is a disproportionate response to the issues identified by CSA.

But, investors have also piled into the CSA consultation, arguing that embedded commissions are not transparent and that all compensation conflicts should be eliminated because they create advisor bias.

“The majority of seniors cannot comprehend complex mutual fund classes with embedded commissions that currently exist,” Mary Boom, a retiree in London, Ont., said in a comment letter. “I want to know the cost of the fund I am buying separate from the cost of the advice. This would allow for a more transparent process and the interests of the client being addressed first and foremost without any incentivized conflict.”

IAP used its letter to comment on a swath of advice industry regulation, calling for a ban on embedded commissions on mutual funds, non-redeemable investment funds and structured notes—and any other forms of compensation “that harm investors.”

Embedded commissions “are just the tip of the iceberg,” IAP adds, referring to industry incentives encouraging proprietary products and referral arrangements.

Read: Industry response to embedded commissions ban: IFIC and Advocis

CRM2 not enough

Retiree association CARP says CRM2 did not go far enough: “Financial firms must only disclose the cost of advice; there is no requirement to disclose the cost of products sold.”

CARP referred to a survey of its members showing that 44% “did not realize that they were paying embedded commissions to their advisors. Moreover, less than half knew when their advisor received a commission from selling a financial product or how much the commission was.”

Discount, online brokerages that charge embedded fees without advice “is tantamount to theft,” the group adds.

Investor advocate group FAIR Canada says embedded commissions should be banned along with deferred sales charges paid by investment fund managers—which it says cause conflicts of interest.

The group says the mutual fund fee structure “results in millions of Canadians not receiving objective advice and being sold suboptimal products.”

FAIR cites a 2011 Morningstar report indicating that Canada is among “the highest mutual fund fee jurisdictions in the world,” while many actively managed funds have underperformed.

Read the letters from the Investor Advisory Panel, Mary Boom, CARP and FAIR.

Also read: 

Your services are too expensive: survey

Commissions ban could push advisors to sell insurance products: MFDA

Originally published on Advisor.ca
Add a comment

Have your say on this topic! Comments are moderated and may be edited or removed by
site admin as per our Comment Policy. Thanks!

See all comments Recent Comments


“The IAP says that after the U.K. banned embedded commissions, the country’s Financial Conduct Authority conducted a post-implementation review of that found “the ban had reduced product bias from advisor recommendations and led to better investor outcomes.””

I’d REALLY like to see the details on that study.

Friday, Jun 23, 2017 at 11:37 am Reply

Brian Blundell

The above article says that “investor advocates” and I quote “The experience of banning embedded commissions in Australia and the UK did not create an advice gap”

Having a brother who lives in the UK and Two sons who live in Australia this is contrary to their experience. All three phoned me on various occasions to ask me what could they do, as their respective financial advisors could not afford to remain in the financial services industry. All three were with various banking organisations prior to engaging a financial advisor. They wanted personal service which their respective advisors could give to them as against “general advice” that they received before and have now had to go back.

I also believe a study came out in the UK approximately a year ago saying that approximately 284,000 families in the UK have “slipped through the gaps!” as their portfolios were nat large enough to be handled on a personal basis.

What the “Investor Advocates” are basing their information on?

Monday, Jun 19, 2017 at 1:03 pm Reply

john f brown

Can you tell me who the Investor Advocates are?
I am interested in this make-up as I really do not believe they represent small financially investment ignorant average people, who I believe make up the largest share of the investment community in numbers but maybe not dollars.
It seem dollars always get their say
It seems their is a great deal of talk on fees but I have yet to see anything about performance. Anyone can buy a “free” ETF but do they make better returns than an average Mutual Fund of Individual stock? Nobody discusses this aspect, so maybe there is some value in paying fees

Monday, Jun 19, 2017 at 10:36 am Reply


Those who benefit and receive embedded commission will always voice against the ban. Canada has one of the highest mutual fund fees on earth. Regulators must act proactively, positively in the best interest of investors. Initially, banning DSC and LSC (back end) load types will highly benefit industry and investors.

It is heartbreaking when elderly investors incur thousands of dollars as DSC charges when they redeem funds and I have no idea how those who support embedded commission justify elderly and uneducated investors are being ripped off by advisors. Advisors’ failure in suitability review, cost investors significant losses and nightmare. This is going on for years as no action taken to prevent abuses.

Further DSC/LSC embedded commission increases unproductive work, increase cost-MER (processing, mail confirmations), a nuisance to investors as they receive too many confirmations and reconciling it.

Saturday, Jun 17, 2017 at 7:27 am Reply


If embedded fees were banned tomorrow, I think I speak for all Advisirs when I say that we would continue receiving exactly the same revenue but we would switch from embedded compensation to charging the clients directly by redeeming funds from their account. And I would continue using the exact same funds in their accounts. What will change? Nothing for me but now the client would have a capital gain or RRSP withdrawal to claim on their taxes. Progress?

Friday, Jun 23, 2017 at 11:46 am