Industry groups are warning that a ban on embedded commissions would cut off some advisors and diminish public access to retirement savings and financial advice.
The Financial Advisors Association of Canada, or Advocis, suggests in a release Wednesday that a ban on the commissions would be another threat to an industry squeezed by technology and increased regulation. After the U.K. banned embedded commissions, the group says, the number of advisors dropped by 25% and banks cancelled advisory services for clients who did not have significant funds to invest. It says a ban would “erode access to financial advice for million of Canadians.”
The group was reacting to the CSA’s long-anticipated consultation paper released Tuesday, which indicates the regulator will consider a ban on embedded commissions. CSA says they raise conflicts, limit investor awareness and don’t align with the services provided to investors.
Advocis also cites a study from the University of Calgary’s School of Public Policy that concluded a ban would threaten Canadians’ retirement savings, given data showing Canadians without advisors save 45% less than those who do.
In its forthcoming comments for the CSA consultation, Advocis says it will argue for the creation of a legally recognized profession for all advisors as an alternative to the proposed ban.
IFIC, representing the investment funds industry, agrees that the reforms could disrupt access to investment advice for the “roughly 4.5 million Canadian households” that now pay their investment fund fees through embedded commissions.
“Both regulators and governments should understand whether the cost of banning embedded commissions is proportionate to the regulatory objective of mitigating conflicts of interest,” IFIC president Paul Bourque says in a statement.
He adds: “Many middle class investors (those with less than $100,000 in assets) who make up the largest population of investors will have to choose between paying higher fees and foregoing financial advice.”
Bourque says it’s not clear from the research that embedded commissions are harmful, and existing rules already prohibit potential conflicts.
“If regulators have concerns about specific practices, they already have the tools they need, and we encourage regulators to use them,” says Bourque.
The Portfolio Management Association of Canada (PMAC) supports a ban.
“We believe that clients’ interests are best served by full transparency to help them understand what they are paying for,” Michael Mezei, PMAC board director, says in a statement. Portfolio managers charge fees directly to clients, he says, with those fees clearly established at the beginning of the relationship.