OSC panel wants embedded commissions banned

By Andrew Rickard | April 20 2016 01:30PM

The Ontario Securities Commission's (OSC) Investor Advisory Panel (IAP) has submitted its annual report: it wants to see all third-party embedded commissions and remuneration eliminated. The IAP is also calling for a single regulatory organisation to oversee both mutual funds and segregated funds.

Over the course of last year the IAP says it "repeatedly urged" the OSC to create a best interest standard which would outline the obligations that advisors have towards their clients. The IAP says this standard should put the interests of financial consumers "before those of the industry that services them".

Other jurisdictions

The IAP also believes that the regulator should ban embedded commissions. "Other jurisdictions have already done so – the OSC must follow suit by eliminating all third-party embedded commissions and remuneration," reads the report.

In support of this position, the IAP points to the research conducted by Douglas Cumming, which found that mutual funds that pay trailer commissions tend to underperform other funds, but still manage to attract investors despite their poor performance.

Insurance products

What's more, the IAP says it is concerned about new products it claims have been designed to "skirt around" the regulations that make up Phase II of the Client Relationship Model (CRM2). The IAP goes on to note that CRM2 will not apply to insurance products because insurance does not fall under the purview of the provincial securities regulators.

"It is time to break down the regulatory silos and harmonize regulation – the goal must be to have the same rules for comparable services and products," says the IAP "And to ensure consistent compliance and enforcement of the rules, a single independent regulatory organization is required."

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