After a recent meeting with regulators, Invesco Canada is preparing for the end of embedded commissions. The mutual fund company is launching tools to support advisors during this transition.

When he stopped by the offices of The Insurance and Investment Journal for an interview in November, Invesco Canada CEO Peter Intraligi foresaw a grim future for embedded commissions. He warns that advisors must brace themselves for “a commission-free world.”

The fund company is preparing by launching a host of initiatives to aid its advisors, including very low cost products that all their customers can access, even those with fee-based management accounts.

Invesco Canada boasts about being a frontrunner in exchange-traded funds in 2009: its Powershares shook a market that had previously been limited to Blackrock’s iShares. BMO followed on its heels, just before the stampede. A year later it introduced a mutual fund version of Powershares.

Cost-reducing technology

Invesco blazed another trail last year with a platform that lets investors trade mutual funds at a low cost, called Platform Traded Funds (PTFs). The funds are traded like stocks, but are sheltered from price fluctuations because their net value is known only at the end of the day. Investors can also circumvent the costly Fundserv platform.

Soon Invesco plans to launch a robo-advisor, to let its independent advisors in Canada serve their lower net worth clients more easily.

Accompanied by Jason MacKay, senior vice president, national sales manager, and Alain Huard, vice president Retail Sales, Quebec, Intraligi is moving ahead with various innovations, whether or not embedded commissions are eliminated. He points out that the transfer to fee-based management is intensifying in the US, where 80% to 90% of assets are managed under fee-based accounts.

In Canada, this compensation method has made only modest inroads at mutual fund firms, but is gaining momentum within securities brokerage firms. “In the Mutual Fund Dealers Association of Canada (MFDA) channel, the proportion of assets under management is only 5%. On the IIROC side 30% to 50 % of assets under administration are in fee-based accounts depending on the firm,” Intraligi says.

His last meeting with the Ontario Securities Commission (OSC) left him anticipating the demise of embedded commissions. “When you consider what regulators are looking at, you expect to be 100% fee-based,” he adds. “ MFDA [members] would have a really big transition to make” if the regulator decides to eliminate embedded commissions, he adds.

Canadian regulators are under strong pressure: the global wind of transparency and fair treatment of clients, and the quest to stamp out conflicts of interest are heightening advisors’ obligations. In the United States, only fee-based management is eligible for 401(k)s, named after the regulation that governs plans similar to group RRSPs and Canadian pension funds. Open accounts are not yet subject to the fiduciary rule.

 The Securities Exchange Commission (SEC) insists on fees in a quest for greater transparency, and to protect the clients’ interests, explain Invesco Canada’s leaders. “Many wonder if the same would happen to RRSPs in Canada. Since the spring of this year, regulators required more transparency. So some dealers decided to offer fee-based retirement accounts,” McKay underlines. 


The consultation on the future of commissions will end June 9, 2017. According to Quebec regulator, Autorité des marchés financiers, the Canadian Securities Administrators (CSA) will make its decision on whether or not to cut embedded commissions this year or by 2018 at the latest.