Advocis responds to portfolio manager’s criticism

Advocis responds to portfolio manager’s criticism

Advocis responds to portfolio manager’s criticism The CSA's proposed ban on embedded commissions for financial advice is a hot topic of debate right now and everyone in the industry has their opinion. Here, Greg Pollock, president and CEO of Advocis, gives his response to recent comments made by John De Goey, a Portfolio Manager with Industrial Alliance Securities Inc.

“First and foremost, forcing all investors to pay directly would erode access to financial advice for millions of middle-income Canadians, for whom direct fees of hundreds of dollars are simply unaffordable. Commissions put financial advice within reach for those who need it most, like working families struggling to make ends meet and young people just starting to save for their futures.

In its own consultation paper, the CSA acknowledges that those with less than $100,000 to invest are already underserved in the market, and goes on to concede that “independent fund dealers may choose not to continue to service these households” after commissions are eliminated.

Doing away with the choice to pay for advice through commissions is simply reckless, especially in the face of overwhelming evidence that similar policies have led to devastating consequences elsewhere.

In Britain, when advisory fees were unbundled from financial products, all of the country’s major banks cancelled their financial advisory services for clients without significant funds to invest and the number of new investment accounts of less than £100,000 was cut in half. British regulators have since admitted publicly that their package of reforms, including the commissions ban, have made the cost of advice prohibitively expensive for many investors. This conclusion is supported by data showing that the proportion of retail investment products sold without advice has significantly increased since commissions were banned, from roughly 40% in 2011 - 2012 to nearly two thirds in 2014 - 2015.

In this case, the CSA would be wise to heed Einstein’s oft-quoted definition of insanity. Instead of conducting the same failed experiment expecting different results, our regulators should be focused on policies that expand access and enhance the quality of financial advice available to Canadians.

Eliminating commissions does nothing to ensure the proficiency and professionalism of financial advisors across the country. The best way to do that is to oversee financial advisors as we do all other professionals that provide essential advice. Just like lawyers, accountants and engineers, all financial advisors should belong to a professional body and be required to adhere to a common code of professional and ethical conduct, mandatory professional liability insurance, ongoing continuing education, and a disciplinary process with the authority to suspend an advisor who has wronged an investor.

The bottom line is that all Canadians – regardless of their income – deserve access to sound and trustworthy financial advice delivered by competent and qualified professionals.”

Related stories:
A portfolio manager’s view on the ban on embedded fees
Advocis: Advisors can help stop the ban on embedded fees
  • Ross B. 2017-03-27 10:15:57 AM
    The title of this article is "Advocis responds to portfolio manager's criticism". While there was a response, it would have been more credible had Mr. De Goey's direct questions been answered and his criticisms been directly addressed.
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  • Kathy 2017-03-27 11:26:00 AM
    Pollock contradicts himself. He wants the profession to be like lawyers and accountants, well last time I looked I pay those people based on the amount of work they do not commissions.

    I think he also underestimates how young people with degrees want to be paid for what they know not what they sell. The word commissions is still too associated with sales tactics rather than advice. The industry struggles to recruit and with retention.

    The whole argument seems to be about asking people to pay directly for their advice making it unaffordable. Don’t most fee based advisors just use a class of funds with no trailer and then have a fee agreement? It still comes out of the account each month but is clearly split out and visible.

    Here in lies the objection I think if someone sees the fees they may actually ask for some value in return. Instead of the years of skimming off fees and no one noticing then advisors will have to step up justify cost and show they added value.

    Should most people with under $50,000 be investing in these things anyway? They don’t have sufficient emergency funds or disability plans to replace income. (yes I have a 30 year old with full DB pension , no debt , emergency fund , great disability plan and sick days , has $40k she does invest it long term but that’s not the norm )

    $75,000 ? Currently paying $1900 in an average mutual fund. An advisor could put someone in 3 index funds at 0.25% and charge $50 a month and that’s still $300 an hour for the 2 hours a year they spend with the client to rebalance and advise. (I am completely aware of the overhead advisors have.)

    Get modern, webcam with your clients, do more education making videos for them etc. At that level there is no stock selection going on , its their dealers own brand balanced fund. Families need to learn good financial behaviour and have someone to ask when they have a life change. Maybe a phone call or webcam one year and a face to face the next year. Start thinking about what help your clients really want not lamenting the loss of an unquestioned income stream.

    And yes…….I lived through polarisation in the UK in my 30’s . We had to disclose not just costs but the impact of fees over the years on insurance and investments. We showed two future figures, with no fees, with fees, people are not stupid they don’t think you work for free. I didn’t have a single client say they wouldn’t do something because of it. I do agree with Pollock on learn from it though and find a middle ground.
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  • Robert B. 2017-03-28 9:01:43 AM
    KATHY STATES "$300 an hour for the 2 hours a year they spend with the client to rebalance and advise."
    Frankly, if that's all you do for a client in a year, you shouldn't be making $300 per hour. Financial planning and working with clients to improve long term outcomes requires significantly more time spent. And with younger clients starting out, the choice of paying an upfront fee vs. a commission is the difference between having access to proper, effective advice vs. doing it yourself. And every study ever conducted shows that investors with advice outperform those without.
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