Poll: Retirees want ‘best-interest’ standard for advisors

Poll: Retirees want ‘best-interest’ standard for advisors

Poll: Retirees want ‘best-interest’ standard for advisors Canada’s largest advocacy group for people over 50 has released the results of a poll that suggests older Canadians want better protection for their life savings.

CARP (formerly known as the Canadian Association of Retired Persons) is a non-partisan, non-profit organization that claims some 400,000 members. It has been a loud voice in favour of stronger investor protection. The group conducted an online survey of its membership last month, asking for their thoughts on the current state of investment-industry regulation. The group says 1,900 members responded, revealing:
  • 89% support a best-interest standard;
  • 79% are in favour of eliminating embedded fees in financial products; and
  • 89% want regulation of titles used by people selling financial investments

Calls for a best-interest standard have been renewed following reports of Canada’s biggest banks forcing employees to push financial products on their clients. Currently, financial advisors are just held to a suitability standard, which advocates say exposes investors to products with hidden downsides.

The banks have responded to the news by saying that they do not condone unethical behaviour.

Among the CARP members polled, 53% strongly supported calls for a best-interest standard. “We've seen study after study on a best interest standard,” Wanda Morris, CARP's vice-president of advocacy, told CBC News. “I think what we have is a situation where investors' interests are not coming first.”

The best-interest standard has not pushed through partly due to a lack of unanimous approval from provincial regulators. The BC Securities Commission, one of the standard’s most outspoken critics, has said “the proposed standard is vague, which will make it difficult to enforce” and “misleading for clients.”

As for the strong call to eliminate embedded fees, particularly in products like mutual funds and GICs, it may be because many poll respondents didn’t even know about them. “[A]lmost half of them [44 per cent] said they weren't aware that there could be a fee embedded in financial products that they own,” Morris said.

Studies suggest that mutual funds with the highest commissions are typically recommended, even though other research indicates that they perform very poorly.

Investment professionals pushing against fee elimination typically point to significant job losses that occurred in the UK: after the country banned embedded fees in 2013, the number of financial advisors there shrank from 40,000 to 31,000.

Eighty-nine per cent of the poll respondents agree that regulation governing titles used by people peddling financial products would result in more informed financial decisions. CBC News previously reported that financial service industry representatives can have dozens of titles, but most are just licensed to sell without any obligation to protect clients.

“We think there should be far fewer titles," Morris said, "and that titles should clearly indicate when somebody is a salesperson or when they are providing financial advice.”

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  • NPG 2017-04-21 2:19:24 PM
    The problem with Best-Interest standard is , who decides what is the best Interest of a client.
    The regulator that is not trained, a client that is not educated, the advisor??
    who decides. Whenever this comes up people say yes lets have that. But know one knows who is going to decide. The answer is, its impossible to have. The free market will decide. People say get rid of embedded fees because its not in the best interest of the client.Well, what if the embedded commission is less then the fee for service, in that case its better for the client to have embedded fees. That kills that theory.
    Post a reply
  • Garry Kopeck CFP, CLU, CH.F.C 2017-04-21 5:03:41 PM
    To whomever came to these conclusions in regards to embedded commissions.
    As a financial planner for the past 35 years,CARP Member,and a senior I would like to comment on your advice to the CARP membership in regards to embedded commissions.My qualifications to comment are based on my following designations which hold me to the highest standards when it comes to dealing with my clients - CFP, CLU, CH.F.C.
    You state that most of your membership do not realize that there are fees attached to the products they purchased. This is simply rediculous! If there are such people out there then I agree that they have been poorly advised, but how do they think I get paid. And in that regard doing a poll with my clients and through many industry polls done on that subject more than 90% of those polled stated that they would prefer to have an embedded commission they agree to than an hourly or set rate that I would need to charge for my advice. As an example - I get paid .05% year to manage my clients accounts - which means their annual review ,any portfolio changes or rebalancing and to be there 24/7 for any questions or problems the client may have. On a 100,000.00 portfolio as an example that means I got paid 1000.00. If I went to that client or for that matter if your adviser came to you and said- Let,s settle my bill before we start and that will be 1000.00 how many do you think would actually pay like that? As all the polls taken on that question suggest - only about 10% and this would usually only be the higher net worth clients. This indicates to me that there will be a huge number of seniors on a fixed income that will not have the advantage of having a financial adviser when they need our help the most.The fact you mention that many advisers left the business when embedded commissions were removed in the UK only means that these advisers were usually newer in the business with a client base that could not or would not pay an upfront fee or senior advisers whose client base were on fixed incomes and could not afford to pay fees up front. Due to these reasons is why advisers had to leave the business. I would really like to know how YOU feel about the up front set fees you are asking your adviser to charge you for as long as you maintain a portfolio?
    One more point - You can say that people that don,t want to pay for an adviser can go on their own through robo advice or online trading to reduce fees- Well, there is a well documented study that shows when people used an adviser throughout their investing years they made 4X the amount as the person who did not use an adviser - and this is after fees. (The same embedded fees that you state are robbing investors blind).
    I have been a CARP member for a couple of years but I would hope that whomever is doing your research on such an important matter would get both sides of a story so that people could make informed decisions based on strong fact finding.
    A lot of the the planners in the industry by the way do not really care whether embedded fees disappear, as we will adapt, but what we do care about is that everyone has an opportunity to have sound financial advice. In that regard we believe that client,s should have a choice as to how they pay their fee,s to their adviser. Just getting rid of embedded fees will not solve anything , but just create a whole new problem of who will be able to afford financial advice in the future.
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  • NPG 2017-04-21 5:24:52 PM
    Garry, well said.
    I did a little study of my own clients. The first 40 that came in.
    something like 95% said they like embedded fees vs fee for service. I can tell you,
    these are real people with real money, not some make believe people that the CARP
    people invented.
    Post a reply