IFIC report explains problem with embedded commissions ban

By Staff | June 7, 2017 | Last updated on June 7, 2017
2 min read

With all the shade being thrown at financial services lately, you might find yourself having lots of discussions with clients about fund fees.

Read: Opinion: How to reform a rotting banking advice system

For its part, IFIC has embarked on an education campaign of its own, explaining in a report the options available to investors to pay for mutual funds and why most investors prefer investing with an advisor.

Read: No trailers for advice unless you provide advice, says IFIC

The report also provides data on the difference that advisors make to investors’ long-term savings (2.9 times more savings after seven years with an advisor, and 3.9 times more after 15 years).

Ultimately, the report aims to show how a ban on embedded commissions could result in an advice gap, severely limiting the ability of modest investors to grow their assets. (Others have argued that the gap could be filled by robo-advice, and that client costs would fall under a ban.)

And most Canadian investors are indeed modest investors, with 79% of Canadian households having less than $100,000 in investable assets, says the report, citing Investor Economics research.

The report also says Investor Economics estimates the average embedded commission to be 0.78% or $780 per year for the modest investor.

“Compare this to fee-based accounts in the U.S. where the investor needs a minimum of US$100,000 on which they will be charged 1.3% or US$1,300 annually,” says the report. “With compounding, on an annual return of 5%, the difference between 0.78 and 1.3 will add up to more than US$7,000 after 10 years.”

Read the full IFIC report.

Also read:

Embedded commissions bans apply to 13% of global mutual fund assets: IFIC

Client costs will fall under commissions ban: letter to editor

Commissions ban could push advisors to sell insurance products: MFDA

Advisor.ca staff


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