The Canadian Securities Administrators has for several years debated whether or not to ban embedded commissions from the sale of mutual funds. Activity ramped-up last year with the release of two reports from the Brondesbury Group and Dr. Douglas Cumming that looked at the nature of financial advice and whether commissions influence mutual fund sales. The conclusion was clear: advisors direct more investment dollars into funds that pay higher commissions – it’s a blatant conflict of interest.

In a consultation paper last month, the CSA acknowledged that “embedded commissions create inefficient markets and give rise to conflicts of interest.” It appears that a long-awaited commission ban is finally coming, but if it happens it will be implemented in phases over a 36-month period. Stay tuned, but this is a huge step toward protecting investors from an industry designed to look out for themselves and not the investors they serve.

Meanwhile, Advocis, a lobby group that represents financial advisors, is still trying to convince regulators and the general public that banning mutual fund commissions will somehow harm investors. Their main argument is that a commission ban will lead to an advice gap, where smaller investors – those with less than $100,000 in investible assets – won’t be able to afford or even access financial advice.

The argument falls flat because, in the current environment, these so called “smaller investors” aren’t being looked after anyway. They’re being “sold” mutual funds with some of the highest fees in the world. In a product-focused industry, these investors are not being offered financial advice such as setting up a financial plan that outlines attainable goals over the short and long term.

While it’s likely that a commission ban may force sales people at firms such as Edward Jones and Investors Group to leave the industry, those investors still have plenty of access and choice thanks to an upstart robo-advisor industry, one which arguably gives better advice and leads to better outcomes for these investors.

This Week’s Recap:

Cheers to Rob Carrick for leading his Carrick on Money column with a link to my post on how buying new cars and trucks are killing our finances. Thanks so much for the mention and support!

Jeers to Motley Fool Canada and contributor Will Ashworth for not linking to my article despite discussing it at length in the opening three paragraphs of a recent column. Don’t you know that links make the web go round?

How about a link, Will? Jeez…

On Monday I wrote that rant about our obsession with new vehicles and how I hope to save $50,000 over the next five years just by not having a car payment.

On Wednesday Marie concluded her financial planning for couples series with a look at estate planning for young couples.

Weekend Reading:

Why the long-term power of the tax free savings account has yet to be fully tapped.

Kerry Taylor is “On The Money” with this terrific explanation of why the TFSA is so misunderstood and misused:

On the flip-side we have the RRSP, which turns 60 this year. Jason Heath on why the RRSP is still as important as ever as a tax-planning and retirement savings tool:

“As top marginal tax rates have risen in recent years to well over 50 per cent in many provinces — specifically, in Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia and PEI — the RRSP is one of the most straightforward tax shelters for high-income employees.”

Speaking of tax planning and retirement, here are three strategies to help retirees generate reliable cash flow:

3 strategies to help retirees generate income

Rob Carrick says tighter regulation of the investment industry, while a good thing, may seriously stifle innovation for robo-advisors and online brokerages:

“Someone has to offer a sound, low-cost, welcoming platform for beginners and the low-net-worth segment. No, bank branches aren’t the answer. They too often act as sales centres for financial products.”

Speaking of where innovation clashes with regulation, robo-advisors are seeking permission to bypass a required phone call in the “know-your-client” process in favour of an online-only form.

A great interview with CFP Jason Heath on raising money-savvy kids.

Why are you always broke? Here are 15 things holding you back from being a multi-millionaire.

There’s a reason why, when choosing a mortgage term, I opt for the cheaper of the short-term fixed rate or the 5-year variable rate. When I renewed my mortgage last fall I went with a 2-year fixed rate at 2.19%. That’s because variable rate discounts were not very attractive at the time. Today, fixed rates have ticked up while variable rate discounts have come down to as low as 1.83%.

Finally, in praise of weird spending – a term coined by Des Odjick to describe those areas of your finances that stray away from the average household budget.


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