How minor changes could achieve regulatory goals

by Peter Intraligi, President, Invesco Canada

We recently submitted another comment paper to the Canadian securities regulators regarding the ongoing consultation over the future of embedded compensation.

We remain steadfast in our advocacy of choice and transparency in the marketplace, and believe that a ban on embedded compensation would cause more harm than good.

I believe there are regulatory changes that would still achieve the regulators’ goal while avoiding throwing the industry into disarray.

In our latest submission to the Canadian Securities Administrators (CSA), we suggest that the regulatory concerns set out in the CSA’s paper can be addressed with the following:

  1. Prohibit the deferred sales charge (DSC): This purchase option was created with good intentions, but while the industry and commission structures have evolved, the DSC has not. The DSC can help maintain investment discipline, but it remains open to abuse – whether by using it with elderly clients or clients with shorter-term goals. It can also create a compensation conflict when assets at the end of the DSC schedule are re-characterized as front-end load assets that pay a higher trailing commission. These conflicts of interest are very difficult, if not impossible, to overcome simply through better disclosure. For these reasons, the CSA should prohibit the DSC.
  2. Set (rather than cap) trailing commissions at 1%: Setting commissions at 1% would remove the perception of conflict – the notion that an advisor may choose one fund over another due to higher compensation. This measure would be as effective as a ban, which would effectively set the commission at 0%.
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