Banning embedded commissions would force firms without a robust platform for fee-based management to consolidate, or to drop clients who cannot afford this compensation method.

Invesco Canada says that mutual fund firms that lack a solid technological platform when commissions are cut will be obliged to merge, sell, or, worse yet, leave the industry.

“The Commissions ban will have unintended consequences, like pushing smaller accounts out of advice and toward bank branches or digital platforms from other institutions,” CEO Peter Intraligi predicts. He adds that the largest robo-advisor in Canada belongs to Power Corporation, that BMO also has one and several other banks are poised to follow.

As a supplier, Invesco is not worried that products will disappear if an embedded fee ban comes about. “Another dynamic will emerge, like Platform Traded Funds. We believe that in a fee-based environment, advisors will work with fewer products, at a lower cost,” Intraligi explains.

He predicts a drop in the number of mutual fund managers. Those who could not build a less costly structure, while supplying oversight and risk management services, will disappear.

The same logic applies to fund firms, for whom major growth in fee-based management will challenge profitability, Intraligi continues. “Just as advisors are liable for their advice, dealerships created large research teams with a very huge due diligence process for the managers, stress tests, etc. It’s a lot of work. Their reaction has been to focus on the best of the best. They will have fewer companies on their shelves, and will go deep on five or six managers,” he says.