The long simmering debate over the high cost of Canadian mutual funds may soon come to a head, bringing more dramatic change to an already fast-evolving wealth management industry.

The Ontario Securities Commission, acting on behalf of the Canadian Securities Administrators commissioned The Brondesbury Group to review existing research on mutual funds compensation and yesterday they released their report.  The regulators’ ultimate aim is to decide whether to eliminate mutual fund commissions in Canada and move to a fee-based model (as regulators have done in the UK and elsewhere).

 The report doesn’t make recommendations on policy, but the simple truth highlighted in this report is that commissions increase expenses (and therefore lower the investment returns on mutual funds) and can lead to biased recommendations from advisors. Fee-based compensation is deemed more economic for investors and inherently comes with more objective advice.

 I think the regulators will use this research to bolster their case for eliminating mutual fund commissions in Canada.

Tags: Financial Services, Industry