Key findings include:
- Evidence on the impact of compensation is conclusive enough to justify the development of new compensation policies.
- There is conclusive evidence that commission-based compensation creates problems that must be addressed. Fee-based compensation is likely a better alternative, but there is not enough evidence to state with certainty that it will lead to better long-term outcomes for investors.
- Compensation influences the flow of money into mutual funds. Higher embedded commissions stimulate sales.
- Advisor recommendations are sometimes biased in favour of alternatives that generate more commission for the advisor.
- In the absence of embedded compensation, advisors recommend lower-cost products. These typically have better returns because of lower expenses.
- Funds that pay commission underperform. Returns are lower than funds that don’t pay commission whether looking at raw, risk-adjusted or after-fee returns.