Disclosure is the key to making sure trailing commissions stay in the industry.
“What we would suggest is maintain the commissions, have disclosure so people are clear – as we are seeing with CRM2 – and I think it has to come to the insurance side as well – so people know what they’re paying but give them the choice,” said Ed Skwarek, vice president, regulatory affairs and public affairs with Advocis. “Removing the choice would be so damaging to the people who most need financial advice accessing it.”
While debate rages on in the industry about the relative merits of fee-based and embedded commissions, regulators are weighing up concerns around protecting consumers while also ensuring the most retail of retail investors get access to advice.
“Trailing commissions can get you into a lot of trouble,” said Janet Ecker, president and CEO, Toronto Financial Services Alliance (TFSA), a public–private partnership dedicated to growing Toronto region’s financial services cluster and building it as a “top ten” global financial services centre.
“Obviously there are problems with it. I think disclosure really, really helps. I’m not necessarily saying scrap (trailers), I’m not necessarily saying we need to leave them, I’m saying OK how do we pay for this in a way that doesn’t end up with a society where a lot of people who deserve planning aren’t going to get it.”
But disclosure has to be meaningful.
“Disclosure can’t be in the telephone book we call the prospectus,” Larry Ritchie, a partner with Osler, Hoskin & Harcourt LLP and part of the three person expert panel reviewing the mandates of FSCO and DICO. “It has to be meaningful disclosure. I think meaningful disclosure in the 21st
century is it has to be based on a relationship that an advisor has with the customer, the investor.”
Given reforms in Australia and the United Kingdom, trailing commissions have become a hot topic. In the UK, their loss may have decimated the industry, with many advisors quitting for greener pastures. Still, in Canada, real consideration is being given to a ban, with some suggesting that’s the only way of eliminating perceived and actual conflicts of interest.
“I think it gets back to one of the great unwritten rules about anything governments do is the law of unintended consequences,” said Ecker. “If we take trailing commissions away, then what do we do? How do we pay for it?”