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www.insidehalton.com | OAKVILLE BEAVER | Thursday, Septem ber 2 8 , 2 0 1 7 |32 Embedded commissions debate continues as changes loom o you fully understand how you pay for investment advice? If you are like many people, the answer is probably no. Changes are coming on how financial advi sors are paid. Details of these changes are not known, but investment industry participants have been de bating this important topic for many years. W hat we do know is there will be changes. When, is still uncertain. For many advisors, a signifcant part of their remuneration comes from embedded commis sions based on investment product purchases, and continued ownership of mutual funds. The most disputed embedded costs are the mutual fund trailer fee and deferred sales charg es (DSC). Trailer fees are the commissions the mutual fund company pays to advisors for selling and retaining its funds, and can range anywhere from 0.5 per cent up to 1.5 per cent. Not everyone is aware of deferred sales charg es. These are the back-end fees that lock in in vestments for, typically, seven years. Many mutual funds pay an initial fve per cent commission to the investment frm , knowing it D will receive ongo ing trailer fees. This commis sion is then usu ally split between the investment frm and the fnancial advisor. To safeguard themselves from losing that up Guest Contributor front money, the mutual fund com pany will charge the investor a pro-rated redemption fee if they sell early. This does not safeguard the client who may have purchased these mutual funds without be ing aware of the details. For example, if you purchased $100,000 of the mutual fund, the investment frm and advi sor would be sharing a commission of $5,000. If the investor sold that mutual fund in a short period of time the investor could be charged $5,000. The issue being discussed is not whether there should be a fee for receiving investment advice. Dollars & Sense Peter Watson The issue is embed ded commissions are often not understood by the individuals who invest. Last week Maureen Jensen, chair and chief executive of the Ontario Securities Commission said the status quo on the use of embedded commissions is no lon ger an option. In her opening re marks at a roundtable discussion held in To ronto, Jensen said, "As regulators, we are very concerned about the conflicts that arise from embedded compensation." The Canadian Securities Administrators (CSA) have been dealing with this topic as well. The CSA oversees all the provincial securities commissions. It released a paper early in the year requesting comments about embedded fees and by June had received 140 submissions. Jensen said the core issue of embedded com missions is a conflict of interest. When certain investments pay a commission, there is an incentive for advisors to sell those specific investments to their clients. The CSA will release recommendations next spring. That will likely continue the conversation with no resolution in sight. It is my recommendation that you take the spirit of this ongoing dialogue to heart and have your own discussion with your financial advisor on how they are remunerated. This does not have to be a challenging con versation but one of clarity and understanding. It is in your best interest to understand all aspects of the investment advisor payment to ensure there are no conflicts of interest in the investment advice you receive. -- submitted by Peter Watson. Peter Watson is an agent of, and securities products provided by, Aligned Capital Partners Inc. (ACPI). ACPI is a member of the Investment Regulatory Organiza tion of Canada and the Canadian Investor Protec tion Fund. T h e opinions expressed are those of the author and not necessarily those of ACPI. 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