Even veterans of the fee-based model say it won’t be enough to protect clients from unscrupulous advisors fixated on investments.
“If you go to a bank and it shows that you have thousands of dollars in your account, the representative would ask if you want to open a TFSA, but at the same time they also know you have a credit card,” said Rona Birenbaum, a noted fee-based advisor with Caring for Clients. “They know that you pay 19 per cent of interest on that card, but will recommend you invest the saving in your account. I hear it all the time. The waters have really been muddied where people think fee transparency will solve conflict-of-interest issues, but that’s just not the case. You may know how much you’re paying if an advisor tells you, or has a responsibility regarding fee transparency but that doesn’t eliminate COIs.”
Her comments come on the heels of a report released by Kenmar Associates, citing a series of recommendations for the OSC and the industry such as establishing a seniors’ advisory committee to protect retirement funds, a crackdown on selling DSC funds, and creating an investor restitution fund.
“Much of the debate has centered on conflicts-of-interest and the argument that embedded commissions gives rise to conflicts-of interest and skewed investment advice recommendations,” the report notes. “There is another important dimension to consider. Commission–based and fee-based advice can also cause excessive leveraging, discourage debt reduction, ignore household spending patterns and downplay savings (as opposed to investing).