Regulator has second thoughts on eliminating commissions

Regulator has second thoughts on eliminating commissions

Regulator has second thoughts on eliminating commissions

The Financial Conduct Authority’s acting CEO let the cat out of the bag last week and the possible repercussions could be felt across the pond here in Canada.

“We do not want to go back to a world where we had the problems of the pre-RDR, what we do want to look at is actually what is the best way of delivering advice and guidance across the market so I wouldn’t rule out that there may be some element of commission, but we are not going to reverse the RDR,” acting FCA CEO Tracey McDermott told the BBC’s Money Box program Saturday.

Investor advocates across Canada must be shaking in their boots thinking about the very possibility. However, the admission by McDermott is hardly news.

In the fall WP reported that the FCA had established the Financial Advice Market Review (FAMR) to study how the elimination of embedded commissions has reduced the ability of less wealthy clients to obtain investment advice.

“[This] experiment (of eliminating embedded comp.) has inevitably resulted in rising advice costs, reduced adviser numbers and a significant reduction in the delivery of financial advice,” Richard Bishop, a practicing financial advisor in the UK and Coventry University College lecturer, write in a scathing op-ed in the Financial Times last September. “The FCA has proven to be a very expensive way of delivering regulation in the UK; it may be the case that the implementation of the FAMR requires a new regulator, not a new regulatory approach.”

If the UK, one of the role models for financial reform, is willing to consider a return to commission-based compensation, it seems only fitting that Canada put the brakes on any hasty move to eliminate them.

Even Ken Kivenko, a member of the OSC’s Investor Advisory Panel, and a big supporter of regulatory reform, is quick to point out some of the inequities of a move from commission-based accounts to fee-based ones.

In a September WP article Kivenko discussed his own personal situation where he moved to an online discount broker rather than move to a fee-based model where is full-service broker would earn four times the fees he’d normally paid the broker under a commission-based structure.

“Really, in a way it’s an unsuitable recommendation,” Kivenko said. “If IIROC was sharp they would say it’s not only recommendations to buy or sell or even to borrow that are unsuitable but also putting someone in the wrong type of account is unsuitable.”

It appears the FCA have arrived at the very same conclusion.
9 Comments
  • John De Goey 2016-01-12 11:04:09 AM
    Please ask Mr. Bishop to explain how eliminating one form of payment makes the absolute quantum of payment inevitably go up.

    If an advisor is making a living earning 1%, how does s/he not earn a similar (identical) living by giving the client a bill for that amount? If s/he (inevitably?) bills more, please explain why.
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  • Robert Roby 2016-01-12 11:05:05 AM
    Mr. Kivenko moving to a brokerage account to save commissions is typical of the mentality of the powers that be. They fail to understand the value of utilizing a professional, which has proven, that after fees, investors with professional advisors have substantially more assets than those who don't. The focus on fees is very prejudicial to advisors and to investors who fail to see any value. Its been proven in Britain and Australia. I would like to see how Mr. Kivenko's portfolio returns compares to ours. In addition, if Mr. Kivenko feels he can keep the emotion out of his decision making he is indeed a marvel.Its this kind of mentality which is hurting the general investing public rather than helping them.
    By the way, I'm on my way to see my mechanic to do a root canal. He is only charging me a quarter of that which my dentist wants. Cheers
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  • Niki 2016-01-12 11:35:29 AM
    Sarcastically speaking--so the poor or those entering the market can use the machines for advice whereas those with the wherewithal get humans.

    At a time when the top echelon of advisors are themselves reaching retirement, the new ones cannot start.

    So when it comes to truth--it is not really about commissions, but more like oppression and repression. Must make Karl Marx happier that his thesis might prove true after all.
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