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Russell Investments Canada, CIBC Asset Management and RBC Global Asset Management are among several fund companies that have series of funds that pay slightly higher than average trailing commissions.
Reasons given for the bump in compensation range from legacy issues to various advice models to complicated fund structures. But executives say it is a trend that is decelerating as many companies have started to focus more on mutual fund offerings that specifically cater to the fee-based adviser (which strips out the trailing commission component).
"Ten years ago, funds that have an embedded commission would have made up a vast majority of our business,' says David Feather, president of Russell Investments Canada. "Today, 60 per cent of our business is in funds that do not have embedded commissions."
For those funds still offering trailer fees, Mr. Feather says less than 2 per cent fall into the category of higher than average – which includes the Russell Canadian Equity Pool that pays a trailing commission of 1.35 per cent.
"These are mostly from legacy situations," says Mr. Feather. "Fundamentally I don't believe in excessively high trailer fees. I think the world is moving – and while I don't think there is anything wrong with trailer fees in general, the world is moving to be more transparent – and offering non-trailer fee products."
CIBC asset management's CEO David Scandiffio has also seen a decline in higher paying trailers – and says the funds are not a large component of CIBC's business. Currently, 43 per cent of CIBC's funds pay a commission. Of those, 17 per cent are paying higher than average commissions – up to 1.25 per cent for some funds – in what Mr. Scandiffio says was "historically used to support the different economics of advice models."
"There are a lot of factors that go into determining the trailing commission – from the size of the client, the nature of the level of advice required as well as the complexity of the product," says Mr. Scandiffio, who oversees both the CIBC fund family and the renaissance funds. "In the end what the client should be concerned about is the MER – that is the fee they will be paying."
For many Canadian investors, the various components that comprise the MER remain a mystery. According to a 2014 survey of mutual-fund investors by Pollara, only 27 per cent of investors could say they "definitely" believe that part of the fees charged within mutual funds are used to compensate their financial adviser, while 43 per cent of investors replied "I think so." Another 30 per cent believe do not believe they pay for financial advice through embedded fees.
RBC declined to comment on their trailing commissions.
The Mutual Fund Dealers Association is currently reviewing the upcoming CRM2 rules to determine whether breaking out an MER cost to investors – which would include dollar amounts going to the portfolio manager, investment firm, the investment adviser and administration costs – should be disclosed or if such a move would only create further confusion for the average investor.
In addition to this table, trailing commissions can also be found by checking a mutual fund's investment prospectus.
Table shows only those funds paying higher than the 1% average
BE – Back End Charge
DM – Deferred Charge on Mkt Value
DO – Deferred Charge on Org Amount
DSC – Deferred Sales Charge
FOR – Formula One
FE – Front End Charge
FM – Front or Defer Load on Mkt Val
GRP – Group Sales Charge
IS – Initial Sales Charge
LSC – Low Sales Charge
N – No Sales or Redemption Charge
Z – Not Available for Sale
RCS – Redemption Charge Securities
SC – Sales Charge
VSC – Volume Sales Charge