Dealers question lack of cost savings under CIRO’s proposed fee model

The initial consultation on the proposal has been met with an array of objections from industry, including a fundamental concern that the proposed model is expected to result in higher annual fees for about 64% of dealers. That defies expectations that SRO consolidation would lead to lower costs for industry firms.

“On a number of occasions, during the consultation phase on the creation of CIRO, regulators stated that CIRO’s creation would lead, among other things, to increased efficiencies, synergies and avoidance of duplication, which we reasonably expected would pertain to both registrants and a new single SRO,” the Investment Funds Institute of Canada (IFIC) said in its submission to the consultation.

“The fact that only 36% of registrants will experience a fee reduction under the proposed fee model does not meet the intended objectives,” it suggested.

“There was a general expectation within the industry that following the transition period, the efficiencies, avoidance of duplication and cost savings that were foreseen would also happen at CIRO and that those savings would be reflected in reduced fees for all members,” IFIC said. It added: “This is even more relevant given that the industry has paid separate fees for the implementation of CIRO.”

Several commenters called for the SRO to reconsider its approach and methodology for setting dealers’ fees.

“The new and increased fees of the proposed model effectively ‘disrupt’ the existing fee structure to such an extent that further careful consideration by CIRO is warranted,” said the Canadian Bankers Association in its submission to the SRO.

“The initial commitment to avoid such a disruption set expectations for stakeholders as a basis for the amalgamation, and CIRO should take every effort to ensure that this commitment is achieved by the proposed model,” it said.

The consultation also raised complaints about the planned annual fee of $250 per rep under the proposed new model.

In its submission to the consultation, the industry trade group Federation of Independent Dealers (FID) said this fee will disproportionately affect fund dealer firms, which typically have more reps than investment dealers. And it will drive firms to favour reps who can maximize assets under administration, at the expense of newer reps who require training and time to build a viable book.

“The proposed fee of $250 may seem insignificant when viewed in isolation. However, when considered in the context of the financial pressures that new advisors and dealerships often face, it can become a significant barrier,” the FID said in its submission.

“The cost of training and onboarding new advisors is already high, and this fee exacerbates it,” it said. “New advisors require time to learn, build their client base, and slowly begin to generate revenue. Imposing an upfront fee could hinder the potential of advisors, particularly those within underrepresented communities and those with language challenges.”

Alongside the concerns about the overall costs for industry firms, a number of commenters flagged the impact on mutual fund dealers in Quebec, which are expected to continue paying fees to the Chambre de la sécurité financière and the Autorité des marchés financiers, in addition to fees from CIRO. Some worry that these firms will face higher fees, putting them at a further competitive disadvantage.

The prospect of higher SRO fees for many dealers will also ultimately lead to higher costs for investors, several commenters suggested.

Amid concerns about the overall fee burden and the allocation of SRO costs, several commenters called on the regulators to be more transparent about various elements of the proposed new fee structure.