With regulators targeting embedded commissions, IIROC dealers are pivoting toward fee-based accounts, and offering preferred compensation for fee-based revenue.
So says an IIROC review of compensation and conflicts released last week, which found that such incentives could lead to clients being pushed into fee-based account structures unnecessarily.
Proponents of fee-based accounts say they better align registrant and client interests. But IIROC doesn’t accept that as a blanket statement.
“[T]here are […] cases such as ‘buy and hold’ where the client will be paying ongoing fees without receiving a commensurate level of ongoing service,” the paper says. While the paper did not define what that service should look like, the SRO tells Advisor.ca by email that “ongoing service would mean periodic reviews by the adviser to ensure ongoing suitability.”
Critics of fee models have pointed out that fee-based accounts tie advisor compensation to portfolio size, rather than the amount of work performed.
And if a fee-based account isn’t suitable, what could be?
“An alternative compensation model would be the standard commission-based account, where commissions are paid for each transaction,” says the IIROC spokesperson. To be clear, IIROC has per-trade charges in mind, not embedded commissions, which “have nothing to do with it,” the spokesperson says.
MFDA also initiated a review of compensation, conflicts and incentives in December 2016.