Many dealers will be paying more under a new single fee model proposed by the Canadian Investment Regulatory Organization (CIRO).
The investment industry’s single self-regulatory organization (SRO) is seeking feedback on its proposed new approach to its funding, which will represent a fundamental change in how fees are calculated for fund dealers, while investment dealers will end up taking on a bigger share of the funding burden.
The proposed integrated fee model, which would replace the interim fee model that was adopted by the SRO in the immediate aftermath of the merger that created the single regulator, includes an annual dealer fee, along with membership application fees and business change fees.
(The integrated fee model doesn’t cover the costs of integrating the SROs to create CIRO, which remains a separate exercise.)
Under the proposed new model, firms’ annual fees would be calculated based on both the size of their revenues and number of reps.
While this approach is similar to the existing fee model for investment dealers, CIRO said that it represents “a material change” for fund dealers, whose fees are currently calculated based on assets under administration (AUA).
In its notice explaining the proposed new model, CIRO said an AUA-based methodology wouldn’t work well for all investment dealers, given the diversity in their businesses. Basing the model around revenues and reps was seen as the better way to create a model that could be applied to all firms, regardless of their size or business model.
Under the proposed approach, investment dealers will also be shouldering a greater share of the SRO’s funding needs.
According to the proposal, investment dealers and dually registered firms would fund about 71% of the SRO’s costs under the new model, up from 61% in the current model. As a result, fund dealers’ share will drop to about 29% from 39%.
The rising share for investment dealers reflects the fact that they account for about 80% of the dealers’ total revenues, although the fund dealers represent about double the number of reps compared with investment dealers.
By firm size, the industry’s larger firms will continue to pay the lion’s share of the SRO’s costs, about 75% under the proposed model, down from 77% in the interim model — with the share for small firms rising to 3% from 2%, and medium-sized firms seeing their share grow to 22% from 21%.
Alongside the redistributive effects of the proposed new fee model that will raise fees for certain dealers (about 24% of firms), minimum fees are also going up, which will result in higher fees for about 40% of dealers, the notice said.
Minimum fees were reduced under the interim fee model in an effort to support small dealers during the initial SRO amalgamation. Now, with the transition to a new funding model, those baseline fees are going back up.
Application fees for new SRO members are going up too, to more accurately reflect the regulator’s costs of reviewing those applications.
These costs will be highest for applications from crypto dealers, which “require a much more extensive review by CIRO staff due to the novel nature of their business models,” the regulator said.
Over one-third of firms (36%) will likely see fees decline under the new model.
The proposed model is out for consultation until June 24, and is intended to take effect on April 1, 2025.