Advocis: Advisors can help stop the ban on embedded fees

President and CEO of Advocis, Greg Pollock, explains what he predicts the CSA will do next

By Joe Rosengarten

Mar 13, 2017

In response to the Canadian Securities Administrator’s (CSA) plan to ban embedded commissions within mutual fund products, Advocis, The Financial Advisors Association of Canada, is fighting back. Under the CSA’s new plans – released in a recent discussion paper - clients would be required to pay their advisors directly, something Advocis believes would be detrimental to both the advisor community and their clients. “We are in favour of choice and transparency in the marketplace with respect the way advisors are compensated by their clients,” says Greg Pollock, president and CEO of Advocis. “That’s the really critical point and that’s why we’re against the ban.”

Advocis has conducted plenty of research on Canadians’ attitudes to how they compensate their financial advisors. The association found that middle class Canadians (those with less than $100,000 in investable assets) generally prefer to compensate their advisor through a commission structure: Advocis research found that 60% of those surveyed prefer an embedded commission structure, 35% prefer an AUM payment structure, and the remaining 5% would like to be charged a fixed hourly fee. “There should be choice,” Pollock says. “We believe that the work done on disclosure and transparency within CRM2 should address a number of the concerns that some investor advocates have had about lack of transparency.”

In an attempt to raise awareness of the issue, Advocis has asked both advisors and clients to contact MPPs and MLAs to inform them of their displeasure at the possible revamp around fees. Pollock feels that, despite Advocis’ efforts, securities regulators across the country seem to be moving forward with the potential ban. “It’s not the advisors who are going to make the difference here because people may perceive them to be working in self-interest,” he says. “It’s really important that Canadian clients speak to their MPPs and MLAs. If clients like the way they compensate their advisor and that structure, they need to let their MPP know.”

The CSA is currently in a consultation period that ends in June of this year. Although their next step is unclear, Pollock expects the CSA to propose a rule change that will allow them extra consultation time. “We have no idea how long that will take, but I guess it will be between six months and a year, so there is still more opportunity for conversations to be had,” Pollock says. “We do support regulators, but we just think they’re wrong on this proposal.”