An advisor who’s seen the carnage of UK regulatory reform up close is expecting to see a big cull of advisors if the OSC moves to drop embedded commissions.
When Kathy Waite, an advisor with Eureka Investor Guidance, began as an advisor with Prudential PLC in the U.K., she said that “there were 16,000 embedded-commission-based advisors with the firm and by 2004, they were down to just 325.”
“There wasn’t enough money in it for them to stick around and many just set up independent practices but there weren’t able to compete so they fell out of the industry,” the wealth advisor with Your Net Worth Manager told WP in an interview. “It’s difficult to give sound advice when you’re required to sell your company’s brand product that just might not be right for the client.”
Regulatory reforms led to these numbers, she said, and were followed by changes in 2008 when embedded sales commissions were banned, resulting in 11,000 advisors, representing 11 million consumers, making their exit from the industry.
This is the reality that many advisors in Canada are facing if the Ontario Securities Commission
(OSC) decides to ban embedded-commission sales, following the regulatory wave seen in the U.K.
Her comments back up sentiment felt from an advisor in B.C. who told WP that he expects a 20 to 25 per cent drop in the amount of advisors in the field due to the OSC ban on commissions.
“We’ll probably see a 25 per cent drop in the amount of advisors we have in Canada and there’s no reason for it,” the advisor told WP. “What’s this going to do to the economy? All of those people being beat out of the business and it’s illogical for them to make such a decision without full assessing the impact.”
“It’s going to cost jobs. A significant number of advisors will be out of business because of this and it’s just a poor strategy in my mind.”
Brad Kezema, a wealth advisor with Moneta Financial Planning in Edmonton, also gave his thoughts on the impact advisors will feel when CRM2 rolls in, but expressed a different view.
“If client protection is really the focus, segregated funds, PPNs and DSCs should all be in the same discussion,” he said. “The CRM2 rules cover mutual fees, but some advisors could just start selling segregated funds to evade CRM2 rules. So you have to wonder if the OSC is really considering the impact of these regulations as a whole.”