Trailing Commission

What a trailing commission actually is

When you buy a mutual fund through an advisor, the fund company usually pays that advisor's firm, the dealer, a slice of your money every year you stay invested. That slice is the trailing commission, often just called the "trailer." It typically ranges from 0.25% to 1% of your holding per year (as of July 2026), and it comes out of the fund's MER, so you never see it as a separate charge.

The trailer is officially compensation for ongoing advice and service. In practice, it is paid whether or not you receive any advice. If you hold $100,000 in a fund with a 1% trailer, roughly $1,000 a year flows from your returns to the dealer, every year, indefinitely. On an equity fund with a 2% MER, the trailer is often about half the total fee.

The 2022 ban on discount-broker trailers

For years, the strangest corner of this system was the discount brokerage. Do-it-yourself investors who bought funds through order-execution-only platforms were paying full trailing commissions for advice that discount brokers are legally prohibited from giving. You paid for advice; the law said nobody could provide it.

Canadian securities regulators (the CSA) closed that gap: effective June 1, 2022, funds sold on order-execution-only platforms can no longer pay trailing commissions. Fund companies responded by offering Series D (a small trailer for basic service, often around 0.25%) or Series F (no trailer at all) versions on those platforms. If you hold an older Series A fund in a discount brokerage account, it has likely been switched, but it is worth confirming.

In the same wave of reforms, regulators also banned deferred sales charges (DSC), the old exit penalties for selling a fund early, as of June 2022.

The conflict-of-interest question

Trailing commissions create a tension that is worth naming plainly: an advisor paid by the fund company has an incentive to recommend funds that pay trailers, and among those, funds that pay higher trailers. That does not make every advisor conflicted in practice, and many provide genuine planning value that justifies their compensation. But the structure rewards product sales rather than advice quality, which is exactly why regulators have spent a decade tightening the rules and why fee-based models, where you pay the advisor directly and transparently, keep gaining ground.

What to do about it

Three practical steps:

• Open the fund facts document for each fund you own. It shows the trailing commission as a percentage and in dollars per $1,000 invested.
• Ask your advisor directly: "How are you paid, and how much of my MER goes to your firm?" A good advisor answers without flinching.
• Compare the cost of your Series A funds against a fee-based arrangement using Series F funds, or against a low-cost ETF portfolio, and decide whether the service you receive is worth the difference.