After years of debate, the Canadian Securities Administrators (CSA) have announced new policies on advisor compensation and have proposed important changes on how registered firms and individuals deal with their clients. A proposed rule amendment on advisor compensation will be published for comment in September. I’d like to address each of these.
At Invesco, we welcome the direction of the CSA’s policy on advisor compensation.
We are pleased that the CSA has announced that embedded compensation will remain an option. We have long been an advocate of preserving embedded compensation, and allowing advisors and clients to choose the model that best fits their needs.
Advisors deserve to be paid for the services they provide on an ongoing basis. For many clients it is the most appropriate compensation model on the market today.
Where embedded compensation is not appropriate, however, is in the discount brokerage space, where no advice is provided.
I’m pleased to see that the CSA has announced that it will prohibit trailing commissions on not only mutual funds sold within this channel, but on any investment product where the dealer firm or the individual advisor is not required to assess the suitability of an investment decision. It’s arguably the biggest win announced for the small investor, as in many cases it will translate into direct savings for them.
The CSA has also announced that it will prohibit deferred sales charges (DSC). The DSC option served a purpose in the past, but has become outdated in the current financial services environment.
The CSA has also issued proposed amendments to the registration and conduct rules for comment. The main feature of these amendments is enhanced conflict of interest mitigation rules. These rules would require potential conflicts to be addressed in the client’s best interest. Importantly, the proposed amendment states that disclosure on its own can never be sufficient to mitigate a conflict and it clarifies that absent real mitigation, the conflict must be avoided. This will have broad implications for product distribution, especially relating to proprietary products, and we would expect this to make the market more competitive, to the advantage of investors.
It is my sincerest hope that these rule changes proceed in a timely manner and that the mutual fund industry be given a break from what is now 15 years of intensive regulatory scrutiny through rule-making and other measures. This will allow us to focus on what we do best: helping our clients get the most out of life by delivering a superior investment experience.
I thank the CSA members for their defense of choice and transparency.