June 20, 2018: Today’s announcement by all Canadian securities regulators has the potential to be a game-changer for Canadian investors and a shake up for investment firms.
 
The members of the Canadian Securities Association jointly announced new rules today that, when passed, will provide much improved protections for investors.
 
The rules, if passed, will protect Canadians from paying too much for investment products when other, equally suitable and less costly products are available. Investment firms that now only offer their own products (called proprietary products) will have to ensure those products are competitive or start offering others.
 
In a related development, additional rules have been proposed to ban the most egregious uses of embedded commissions. Mutual funds with deferred sales charges (which typically pay a large upfront commission to the sales person ) or embedding fees on funds sold on do-it-yourself exchanges, will both be banned if these related rules are also implemented.
 
Per CARP’s Vice President of Advocacy Wanda Morris:
 
Today’s release shows a path forward to help investors increase their retirement nest eggs. A percentage commission here and there can significantly impact an investor’s goals. Over time someone paying high commissions can end up with a portfolio that is 25% lower – or more – than someone put in both suitable and low cost products.

The high fees many investors have been paying have been a significant headwind – and many have not even been aware of it. Today’s news reveals a path forward to significantly impact the way some companies do business. And that’s a good thing. Compared to their peers in other countries, Canadians are under-invested in low cost exchange traded funds and over-invested in high cost mutual funds. Now that we’re living longer, experiencing record low interest rates and our defined benefit pension plans are disappearing, relief is overdue.
 
According to a survey published in Investment Executive, the average advisor’s earnings for fiscal 2017 and 2018, 45.4 % of advisors at larger firms earned more than $500,000 with 16.0 % of these advisors earned more than $1 million.
 
These rules, if passed, should help protect investors from advisors who are fee-gouging their clients with high-commission paying investments.
 
Further action is needed before these rules and proposals are passed, and restitution for harmed investors still needs reform. But today shines a hopeful light on a way forward for improved retirement security for Canadian investors.
 
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