Regulators extend exemptions for discount brokers to comply with trailer ban

Editorial note: This story was updated on Sept. 1 to include comments from FAIR Canada.

Regulators are extending exemptions from the discount-broker trailer ban in a move they say will ensure investors aren’t negatively affected.

In Ontario the exemption from the trailer ban related to order-execution-only (OEO) firms has been extended to May 31, 2025, the Canadian Securities Administrators (CSA) said in a release on Thursday. The exemptions were previously slated to end on Nov. 30, 2023.

Manitoba and Quebec have also extended the exemption, and other jurisdictions will do the same, the CSA said.

Across Canada, local blanket orders took effect on June 1, 2022 that provided temporary exemptions from the ban on paying trailing commissions to OEO firms — commissions intended to pay for ongoing advice that OEO firms are prohibited from providing.

Those exemptions were to process client transfers and facilitate dealer rebates. For example, investors in funds with no easy non-trailer substitutes could continue holding trailer-paying funds in their discount brokerage accounts, with the trailers rebated to them.

The CSA said the blanket orders were extended to “ensure investors are not negatively impacted by the transition to the OEO trailer ban.”

Investor advocate Ken Kivenko of Kenmar Associates said in an emailed statement that the delay was “very frustrating” and that such a reason could be used “ad infinitum.”

FAIR Canada said it supported the extension.

“There are circumstances where some OEO dealer clients may need to continue holding their mutual funds with trailing commissions, or where they may want to transfer them to their OEO accounts from other accounts where trailers are permitted,” FAIR Canada said in an emailed statement. “In these situations, to the extent trailing fees are paid from the fund, the orders facilitate the payment of rebates equal to these trailing commissions to ensure affected clients are kept whole.”

FAIR Canada added that, over time, it expects all mutual funds with trailers in the OEO channel will be replaced by equally suitable funds with no trailers, redeemed or otherwise disposed of.

Investors should contact their OEO dealers if they have questions, the CSA said in the release.

Michelle Schriver

Michelle is Advisor.ca’s managing editor. She has worked with the team since 2015 and been recognized by the National Magazine Awards and SABEW for her reporting. Email her at michelle@newcom.ca.