Toronto-based PriceMetrix Inc. has developed a publicly available market-based commission schedule to help U.S. broker-dealers and their financial advisors determine appropriate commissions on equity trades.

The schedule is intended to make commissions more transparent for advisors and investors, and to provide a guideline for advisors when they\u2019re determining commissions. It\u2019s available to all firms and advisors at no cost.

\u201cFinancial advisors need a market-based reference point when making pricing decisions,\u201d said Doug Trott, president and CEO of PriceMetrix. \u201cAdvisors will have a better sense for what investors have actually paid and they can determine whether to offer clients a premium or a discount commission according to their own business models.\u201d

The schedule suggests commission amounts based on actual negotiated rates according to the size of the transaction, for eight different principal ranges. For example, the commission for a $30,000 trade is 1.5% of the principal, or $450.

\u201cWe\u2019ve deliberately kept the schedule as simple as possible,\u201d said Trott. He noted that one brokerage firm in the U.S. has already indicated that it is adopting the new schedule.

Most full service brokerage firms in the U.S. still use a type of commission schedule that has been in place since the 1970s, which is complicated and yields widely varying commissions for trades with exactly the same amount of principal.

While many Canadian brokerage firms have adopted simpler principal-based commission schedules that yield consistent commissions in the past decade, this movement has been slower to take hold in the U.S., according to Trott.

\u201cThis is an example of where our brokerage firms appear to be more progressive than their U.S. counterparts,\u201d he said.

But there is room for more progress on transparency in the Canadian market as well when it comes to commissions, according to Trott. Depending on how well the schedule is received by firms in the U.S., he said PriceMetrix will consider developing a similar schedule for the Canadian industry.

The U.S. commission schedule was derived from the PriceMetrix proprietary database of equity commissions paid by over 400,000 U.S. investors for 3.2 million full service retail trades from 2008 and 2009. The firm has similar data covering the Canadian marketplace that would enable it to develop a commission schedule for this country.

\u201cCanadian dealers are further ahead,\u201d Trott said, \u201cbut none of them are using this sort of market-based approach.\u201d

By using such a transparent fee schedule, he said advisors could reduce conflicts in their client relationships, and improve the conversations they have with clients about price and the value that they\u2019re delivering.

\u201cIt\u2019s an investment in making the dialogue between the advisor and the investor smoother and less of a guessing game,\u201d Trott explained.

He added that it reflects a broader trend of greater transparency in the industry.

\u201cI think the world, and regulation in the securities industry, is moving towards greater transparency and fuller disclosure to the client,\u201d he said. \u201cThis is a move in that direction.\u201d

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