Alternative to Prohibiting Embedded Commissions Safeguards Access to Advice for Mass-Market Investors
TORONTO, June 9, 2017 /CNW/ - The Investment Funds Institute of Canada (IFIC) has proposed a package of measures as a made-in-Canada alternative to the banning of embedded commissions currently being contemplated by Canada's securities regulators. The measures, which address the harms identified by the Canadian Securities Administrators (CSA) and allow Canadians to continue to choose to pay investment fund dealer fees indirectly, were outlined in IFIC's submission in response to CSA Consultation Paper 81-408.
"Canadians hold more investment funds as a percentage of total financial assets than any other country in the OECD," said Paul C. Bourque, Q.C., IFIC president and CEO. "A prohibition of embedded commissions will reduce the availability of investment advice for mass-market households with smaller amounts to invest. This unintended consequence will have significant long-term impacts on Canadians' ability to plan and save for retirement."
A research report published by PricewaterhouseCoopers LLP, Canada and cited extensively in IFIC's submission calculated the potential harm to Canadians deprived of access to advice following a ban, estimating that, on average, unadvised Canadians would accumulate $240,000 less in savings prior to retirement than those with access to advice.
"The discussion paper emphasizes that Canada's regulators have not made a decision to discontinue embedded commissions and invites the industry to create market-driven solutions that address the concerns raised in the Consultation Paper," noted Bourque.
IFIC's proposals include: capping or standardising embedded commissions; ensuring that funds that include a payment for advice are only available through channels where advice is permitted; instituting guidelines for the sale of DSC funds; expanding personalized disclosure provisions to include fees paid by the investor to fund managers and describe how trailing commissions that have been paid would compare to other similar funds in the category; and increasing transparency through simplified pricing, naming conventions, and dealer disclosure of client service entitlements and fees, including trailing commissions.
"The CSA's objective in proposing a ban is to improve investor outcomes; however, the PwC report finds no compelling evidence that investor outcomes in direct-pay fee-based arrangements are better than embedded commission arrangements," Bourque noted. "Before proceeding, regulators should understand the impact of banning embedded commissions on millions of mutual fund investors and whether a ban will reduce access to financial advice for mass-market Canadians."
The Investment Funds Institute of Canada is the voice of Canada's investment funds industry. IFIC brings together 150 organizations, including fund managers, distributors and industry service organizations, to foster a strong, stable investment sector where investors can realize their financial goals. By connecting Canada's savers to Canada's economy, our industry contributes significantly to Canadian economic growth and job creation. The organization is proud to have served Canada's investment funds industry and its investors for more than 50 years.
SOURCE The Investment Funds Institute of Canada
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