The CSA's proposed ban on embedded commissions for financial advice is a hot topic of debate right now and everyone in the industry has their opinion. Here, Greg Pollock, president and CEO of Advocis, gives his response to recent comments made by John De Goey, a Portfolio Manager with Industrial Alliance Securities Inc.
“First and foremost, forcing all investors to pay directly would erode access to financial advice for millions of middle-income Canadians, for whom direct fees of hundreds of dollars are simply unaffordable. Commissions put financial advice within reach for those who need it most, like working families struggling to make ends meet and young people just starting to save for their futures.
In its own consultation paper, the CSA acknowledges that those with less than $100,000 to invest are already underserved in the market, and goes on to concede that “independent fund dealers may choose not to continue to service these households” after commissions are eliminated.
Doing away with the choice to pay for advice through commissions is simply reckless, especially in the face of overwhelming evidence that similar policies have led to devastating consequences elsewhere.
In Britain, when advisory fees were unbundled from financial products, all of the country’s major banks cancelled their financial advisory services for clients without significant funds to invest and the number of new investment accounts of less than £100,000 was cut in half. British regulators have since admitted publicly that their package of reforms, including the commissions ban, have made the cost of advice prohibitively expensive for many investors. This conclusion is supported by data showing that the proportion of retail investment products sold without advice has significantly increased since commissions were banned, from roughly 40% in 2011 - 2012 to nearly two thirds in 2014 - 2015.
In this case, the CSA would be wise to heed Einstein’s oft-quoted definition of insanity. Instead of conducting the same failed experiment expecting different results, our regulators should be focused on policies that expand access and enhance the quality of financial advice available to Canadians.
Eliminating commissions does nothing to ensure the proficiency and professionalism of financial advisors across the country. The best way to do that is to oversee financial advisors as we do all other professionals that provide essential advice. Just like lawyers, accountants and engineers, all financial advisors should belong to a professional body and be required to adhere to a common code of professional and ethical conduct, mandatory professional liability insurance, ongoing continuing education, and a disciplinary process with the authority to suspend an advisor who has wronged an investor.
The bottom line is that all Canadians – regardless of their income – deserve access to sound and trustworthy financial advice delivered by competent and qualified professionals.”
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