Time to bring regulation under one roof?

Time to bring regulation under one roof?

Time to bring regulation under one roof? A survey of client attrition rates for 2014 may, in fact, represent a turning point for the industry as it prepares for fallout from regulatory change.

So, why are we talking about this?

WP ran an article Tuesday suggesting advisors working under the embedded-commission business model could lose one-third of their clients through the elimination of trailer fees.

The reduction could happen in one of two ways: Either a client chooses to leave an advisor because they don’t want to pay for services previously embedded in the structure of the mutual fund or, conversely, the advisor ends the client relationship of their own volition because they’re not going to be paid for the services they provide.

As a result some advisors will simply give up their mutual fund license and move clients into segregated funds which don’t come under the same regulatory supervision.

Investor advocate Ken Kivenko’s spoken extensively on this very matter referring to it as “arbitrage,” the act of moving clients from investment products regulated by the MFDA and IIROC to insurance products, which are regulated in Ontario by the Financial Services Commission of Ontario.

“The OSC, IIROC, MFDA, they don’t deal with seg funds,” said Kivenko in a 2013 article in the Financial Post. “Even if all the rules [proposed by these agencies] come in, the advisor can just switch hats and say, ‘I was an insurance advisor when I sold that.”

This entire argument implies that advisors will make this choice solely based on money.

However, Lyle Konner, who is a dual-licensed advisor in Surrey, B.C. sees this discussion in a much different light.

In a brief conversation with WP Tuesday, Konner suggested that advisors looking to give up their mutual fund license won’t do so as a result of money considerations but rather that the regulatory oversight becomes too cumbersome and time consuming forcing their hand.

As a dual-licensed advisor, Konner has clients that use the embedded-commission model, some that buy F-class shares and others who’re fee-based paying a percentage of assets under management. His clients’ preferences are all over the map.

Is it time to bring all the regulation under one roof as they do in Quebec and New Brunswick? Perhaps, but that’s not the real problem here.

The issue is whether ratcheting up regulatory change is going to have the intended consequences regulators think it will. Choice, as so many have pointed out in comments on our site, could be dramatically reduced with this regulatory change.

Worse still, using the example of “arbitrage” between investments and insurance, consumers could end up paying more for their advice, not less.

And no one wants that.  
1 Comments
  • Tony De Thomasis 2015-03-18 12:27:00 PM
    this is an excellent article for all
    lets equate this to other top professionals like medical, legal, etc
    they all report to one body
    anything to do with money should all be under one umbrella
    it will lower fees for the adviser as well as the consumer plus add clarity, which I assume is the real point of all this
    Post a reply