Canadian commission ban debate: Your verdict

Wealth Professional speaks to leading financial advisors to ask them where they stand on the commission ban question

It’s one of the fiercest debates in the arena of Canadian financial advice: should commissions be banned? With CRM2 looming there is a realistic possibility that commissions could be ousted, much as they were in the United Kingdom and Australia.

With that in mind, Wealth Professional decided to ask some leading financial advisors and industry figures in the country about where they stand on the debate.

We gave them a simple task to complete the sentence as appropriate: “I believe that commissions should/shouldn’t be banned because…”

Here is what they had to say.

Those who believe that commissions SHOULD be banned
“They create bias. The issue here is advisor bias, not consumer choice. The people who favour embedded compensation are essentially saying that they favour biased financial advice. Advisors don’t even admit their bias to themselves, much less their clients, yet the evidence (Cumming Report) is irrefutable. Meanwhile, the concept of choice is a specious red herring – and more choice is not necessarily better. Today, most restaurants offer a choice between tap water and carbonated water. Would adding a third option - toilet water - make for better outcomes?”

John DeGoey, portfolio manager at Burgeonvist-Bick

“I would absolutely be in favour of banning DSC mutual funds, which would go a long way toward cleaning up this industry. I don’t believe they are ever appropriate. In my experience, although the costs and risks are supposed to be fully disclosed, investors rarely understand how they work: if they truly did, I don’t think anyone would choose them over the alternatives.

The feedback I have heard is that DSCs are presented in a misleading way, such as: ‘they ensure that your entire investment goes to work for you right away’, or ‘they encourage long-term investment’ or ‘they compensate advisors for providing planning services at the beginning of engagement’. This ignores the fact that advisors can easily accomplish all three of these goals without handcuffing their clients with DSCs.

Moreover, DSCs reward advisors for making short-term sales and provide zero incentive to deliver good service once a new client comes on board. If advisors want to retain clients, they should provide excellent service, not hold them hostage by sticking them with high fees if they leave within seven years.”

Dan Bortolotti, investment advisor, PWL Capital

Those who believe that commissions SHOULD NOT be banned
“I believe that commissions should not be banned because Canadians should have the freedom to choose how they pay for financial advice. Not all investors wish to pay an upfront fee for service - in fact only four per cent of investors surveyed by Advocis wish to pay an hourly fee of $150-350. Enhanced disclosure under CRM2 will increase fee transparency and help reduce potential conflicts of interest.”

Greg Pollock, CEO and president of Advocis, The Financial Advisors Association of Canada

“I believe investors should be given a choice of how they want to pay for advice. To protect investors, advisors need to become professionals like lawyers - we need higher entry requirements and higher continuing education standards. Combine that with better fee/commission transparency and everyone should be happy.”

Sean Harrell, senior advisor and partner, Howe Harrell & Associates

“I believe that commissions should not be banned because we have seen the negative results from other parts of the world. Ultimately the client suffers due to lack of accessible advice or higher costs for the advice available.”

Christopher Dewdney, principal, Dewdney&Co

“Until we have an option to charge by the hour it is all commission as far as I am concerned. I prefer, and think it’s in a client’s best interest, to have commissions (I prefer to call them management fees) that are calculated as a percentage of assets. I recommend they be disclosed clearly on the client’s statement. This is better, in most cases, to activity or trading based commissions or sales incentives. That said, as long as we charge based on assets in an account or product I see it as a commission. A good friend told me ‘you are in the land of distinction without a difference’. Well said.”

Brent Vandermeer, portfolio manager and director, Vandermeer Wealth Management

“I believe commissions should not be banned, however there should be full disclosure to the purchaser/customer as the person selling the product is not acting as an “advisor” but as a salesperson. The investing public needs to know and understand that for the most part they are dealing with salespeople under the guise of advice. On the other hand, people acting as advisors (Advising Representatives – aka Portfolio Manager) to clients should do so on a fiduciary basis and not be paid on commission, but either as a retainer, by the hour or based on assets, and of course the charge should be fully transparent to the client.”

Arthur Salzer, CEO and CIO, Northland Wealth Management

“Clients should have a choice-as long as all costs are transparent. Big Brother Canada should just be a television show-not a regulation mantra.”

Brad Jardine, president and senior financial advisor, CIC Financial

Among the advisors contacted by Wealth Professional, six voted in favour of keeping commissions while two wanted to see them banned: several more chose not to respond. Currently we are running a poll on the issue giving you the chance to have your say anonymously.

Alternatively, you can leave a comment with your thoughts on the issue below.