Canadian regulators propose embedded commissions rules
17 September 2018 Toronto
Image: Shutterstock
The Canadian Securities Administrators (CSA) has published a notice outlining proposed amendments that would prohibit investment fund managers from paying up-front sales commissions to dealers.
This would also ban trailing commissions to dealers who do not make a suitability determination, such as order-execution-only dealers.
The CSA said these changes would result in the discontinuation of all forms of the existing deferred sales charge (DSC) option, and make discount brokerage fees more transparent.
The CSA said the proposed changes will eliminate a compensation conflict inherent in the DSC option that has given rise to investor protection concerns.
It added it expects that the prohibition of up-front sales commission payments by investment fund managers to dealers will eliminate the need for charging redemption fees to investors, effectively discontinuing the DSC option.
Further to this change, dealers would be required to negotiate with clients, and charge directly to them, any up-front sales commissions for mutual fund purchases.
Similarly, the prohibition of trailing commission to dealers who do not make suitability determinations would require such dealers to charge investors directly for services.
The CSA said it is also proposing to eliminate certain disclosure requirements in the simplified prospectus form, in the Fund Facts document and under dealer disclosure rules, since these would no longer be necessary when the DSC option is discontinued.
The CSA will be accepting comments on the amendments, closing on 13 December.
This would also ban trailing commissions to dealers who do not make a suitability determination, such as order-execution-only dealers.
The CSA said these changes would result in the discontinuation of all forms of the existing deferred sales charge (DSC) option, and make discount brokerage fees more transparent.
The CSA said the proposed changes will eliminate a compensation conflict inherent in the DSC option that has given rise to investor protection concerns.
It added it expects that the prohibition of up-front sales commission payments by investment fund managers to dealers will eliminate the need for charging redemption fees to investors, effectively discontinuing the DSC option.
Further to this change, dealers would be required to negotiate with clients, and charge directly to them, any up-front sales commissions for mutual fund purchases.
Similarly, the prohibition of trailing commission to dealers who do not make suitability determinations would require such dealers to charge investors directly for services.
The CSA said it is also proposing to eliminate certain disclosure requirements in the simplified prospectus form, in the Fund Facts document and under dealer disclosure rules, since these would no longer be necessary when the DSC option is discontinued.
The CSA will be accepting comments on the amendments, closing on 13 December.
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