Canadian advisor commission ban is ‘not the answer’

Canadian advisor commission ban is ‘not the answer’

Canadian advisor commission ban is ‘not the answer’ Later this month Canadian regulators are expected to reveal new proposals on the way financial advisors deal with their clients. However, suggestions that commissions should be banned are not the answer.

That’s the verdict of a new study by the School of Public Policy at the University of Calgary. It has delved into the issue of unbundling fees from investment products and suggested that in countries where the idea is already being implemented – including Australia and the United Kingdom – it has inadvertently created a “gap” in advice.

Currently, provincial regulators across the country are examining whether embedded fund fees should be introduced here. However, the report highlights that in the UK the number of financial advisors has plummeted since fees and investment products were unbundled: slipping from around 40,000 to 31,000 since 2011. In addition, the number of investment accounts worth less than £100,000 has also halved. According to the research’s author Pierre Lortie: “many clients are unwilling to pay upfront for unknown results.”

This, he believes, is having a negative effect overall because statistics prove that those who receive professional advice typically save more and are able to accumulate additional wealth – however, this reform is effectively separating investors and advisors and that, he believes, is “counterproductive”.

His assessment is backed by the Financial Advisors Association of Canada (Advocis), which has a long-standing message that banning commissions will restrict access to financial advice among those who need it the most.

“Mr Pierre Lortie’s research strongly aligns with the association’s call to raise the bar for financial advisors through higher education standards and the creation of a profession. It also emphasizes the importance of preserving choice in how investors pay for financial advice,” said Greg Pollock, president and CEO of Advocis.

“We encourage regulators and policymakers to consider this study when making a decision that could unintentionally prevent thousands of Canadians from accessing the professional advice they need to prepare for retirement.”

The study notes that instead of banning commissions and creating an advice gap, a more effective solution to the problem of potential conflicts of interest is to enhance the proficiency and professionalism of financial advisors. The paper recommends a stronger emphasis on standards, continuing education programs and other means to improve the competencies and proficiency of financial advisors.

Where do you stand on the issue of banning commissions for financial advisors? Leave a comment below with your thoughts and vote now in our poll.
  • Susan McArter CFP 2016-04-05 10:28:57 AM
    I totally agree, it is ludicrous in my opinion to remove a process that clients use and like to satisfy the critics who supposedly are pushing for the bundling of fees on the premise that this will benefit the public. This will hurt the people who they profess are being protected. Its a no brainer, increase the education requirements for any one who wishes to work with the public dispensing advice and offering investment products. Require that they belong to one organization that monitors their credentials and regulates their activity. Cut out all of redundancies, stop listening to the few loud voices that continue to garner all of the attention pushing for these changes and take a serious look at offering options. Stop dragging my profession into the gutter based on a few bad apples. We are not all unethical and unconcerned for our clients well being.
    From someone who cares....
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  • Ken 2016-04-05 10:36:57 AM
    Look at research showing the adverse impact of conflicted advice on investor outcomes. Read about the number and nature of complaints filed each month with the MFDA. Consider the amount of leveraging being utilized by unsophisticated investors who should not be borrowing to invest. Read about the poor state of retirement income security of Canadian seniors. Examine facts and the right regulatory reforms will be clear. There are some people today that say drivers should be given the choice of using seat belts - thankfully they are a minority.
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  • Dianne 2016-04-05 12:48:28 PM
    Advisors in Canada, stand up and be heard, make your voice known to the Regulator's. Canadians need to keep their jobs not loose them. All Canadians should be able to afford and have the right to financial advise.
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