Veteran advisor speaks out against regulator

Veteran advisor speaks out against regulator

Veteran advisor speaks out against regulator Recent discussions on the WP website revolving around the pros and cons of embedded compensation have gotten quite heated. A British Columbia advisor presents an interesting hypothesis. 

The Canadian Securities Administrators is currently studying embedded compensation and other sales charges. It’s possible regulators will ban trailer fees at some point in the future.

In an interview with WP, veteran financial advisor Harley Lockhart, past chair of Advocis and advisor at Quail Ridge Financial in B.C., said he’s baffled by the suggestion the industry should move to ban commissions, calling it neither credible or justifiable.

Lockhart believes any such prohibition on embedded commissions would cost consumers and is nothing more than a legacy move for OSC Chair Howard Wetston.

“It’s not a credible move and I think Howard is doing this because he wants to cement his legacy,” said Lockhart. “He wants to look good for the committee, he has a huge vested interest in making this happen and it’s going to cost consumers. 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.”

The U.K., South Africa and Australia took the investment industry by storm when they decided to ban commission-based selling and the idea that Canada would follow suit is drawing the ire of Lockhart and other advisors who feel they’d be unfairly targeted by the new regulations.

For those unfamiliar with the history of this very controversial subject, it began with a discussion published by the CSA in December 2012 that sought feedback from all the stakeholders in the industry about reforming compensation on the sale of mutual funds.

Lockhart argues the move could cost more than 25,000 jobs and the loss of advisors who won’t be ready or willing to make the switch to a fee-based service model.

“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,” said Lockhart. “What’s this going to do to the economy? All of those people being beat out of the business and I think that’s the attitude.”

Still, others such as advisor Jason Pereira thinks industry professionals will simply have to adapt to the changes and evolve with the times.

The senior financial consultant at the Bennett-March and IPC Investment Corp said the move is a necessary one because of the amount of abuse and mismanagement that can occur with commissions.

“I’ve heard a lot of stories from clients who come to find that advisors were making more than they expected and I think that’s driven some of them to a fee-based advisor,” said Pereira. “There are more of us in the market now and with all the different service models – robo advisors – there’s an opportunity create a new market.”

He added that there will be significant challenges but said the impact shouldn’t be too severe and commission-based advisors will need to step up their game to thrive in a fee-based system. 

This article has been edited to remove an earlier quote from the OSC Executive Director and CAO, erroneously applied to this subject.
  • Mark 2015-02-11 11:52:24 AM
    As usual, we throw out the baby with the bathwater instead of examining and getting rid of the sharks swimming in the water. How about offering the consumer choices, disclosing all fees including the taxes charged by the government and actually enforcing rules against "rogue" advisors.
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  • Frank Gerry 2015-02-11 11:53:33 AM
    I came from a retail enviroment where if you were not paid you sent the customer to a collection agency. In a fee based envrioment what do you do in a bad year where the client refuses to pay because you lost them money?? Send them to collection?? Also what do you do with the 'small' investor who only has $50.00/ month to put into an account? You know the ones this idea is supposed to protect! How do you bill them for a normail service fee? These smaller investors are the people who will be without advice and lose out in the end
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  • Mark Matsumoto 2015-02-11 12:06:14 PM
    I give the directors of the regulators an F-.
    In my opinion, they have lost sight of their purpose. The banks are the big beneficiaries of more regulation which shouldn't be the objective of regulation.
    Bank's "commissions" are so far embedded that they are part of the MER's and don't show as commissions. Their business model will be undisturbed.

    Compliance costs have made average clients non-profitable. Therefore the average client has already lost access to independent advice and these additional laws will make access to advice even more difficult or much more expensive for them.
    Starting in the business will be even more difficult, so there will be a bigger shortage of independent advisors as the already old workforce of advisors get out of the business.

    I think that regulators have lost sight of why they are here and are causing real, significant damages to the people who they are supposed to be helping. Protecting average people from financial advisors by eliminating the current and future advisors isn't really helping anyone other than the banks who will gain monopoly power over the average, general public.
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