IFIC hits back at CSA plan to ban embedded commissions

The Investment Funds Institute of Canada (IFIC) has wasted no time in responding to a CSA notice that suggests securities regulators plan to ban embedded commissions.

“The concerns that regulators cite as driving the need for further reforms—potential conflicts of interest and investor awareness of fees and performance—are already being addressed through a number of world-leading initiatives right here in Canada,” says Joanne De Laurentiis, IFIC president and CEO, in a release. “Furthermore, the CSA is already consulting on significant targeted reforms that will further enhance the regulatory framework.”

IFIC makes an argument that CSA appears to make a point of rejecting in its notice — that CSA should wait until CRM2 and other regulatory initiatives have had their desired impacts before even considering any kind of ban on commissions.

The industry group says “[i]t is incumbent on the CSA to:

• allow full implementation of current regulatory initiatives, including those related to enhanced disclosure (pre-sale delivery of Fund Facts and CRM2) and fairly assess their results;
• conclude consultations on enhancing the client-adviser relationship (best interest and targeted reforms); and
• determine next steps, before signalling that significant new reforms are needed. This is particularly so since a ban is being discussed for only one product out of the basket of financial options, ignoring the reality of Canadians’ investing habits.”

IFIC points out that research on fees commissioned by CSA “failed to identify any evidence that fee-based advice is any less conflicted than advice obtained through the payment of embedded fees.” The industry group also suggests the experience of the U.K., where commissions are already banned, shows the move would harm investors “by eliminating access to advice and raising costs.”

A ban on embedded commissions would also put CSA in the business of regulating fees, “something it has historically been reluctant to do,” notes IFIC’s release.

“It is important for regulators to consider the market forces that are reshaping and streamlining the industry to the benefit of investors,” says De Laurentiis. “Technology that will enable the automation of certain aspects of the business will contribute to lowering the costs of delivery, while the explosive growth of F-class series funds is providing investors with more fee-based pricing options.”

IFIC suggests CSA lacks clarity on what it’s trying to accomplish. “The regulators are taking the industry and investors on a bumpy ride without any kind of road map or even a clear or agreed upon destination,” De Laurentiis says.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.