FPAC president: let's stop talking about the non-existent "advice gap" in Canada

Head of Financial Planning Association of Canada says claims distract from the real problem

FPAC president: let's stop talking about the non-existent "advice gap" in Canada

There’s no denying that Canadian consumers and investors, particularly on Main Street, are underserved when it comes to financial advice. But while investor advocates and financial firms alike have sounded the alarm on an “advice gap” in Canada, one top advisor says it’s time to drop the phrase from public discussion.

“I’ve spoken to others in the investor advocacy space, and we’ve largely agreed we’ve got to stop using the term ‘advice gap,’” Jason Pereira, partner and financial planner at Woodgate Financial, and president of the Financial Planning Association of Canada, told Wealth Professional. “There isn’t one. That’s been empirically proven.”

No shortage of advisors in Canada

Over the years, numerous stakeholders from the distribution industry have pushed back against ever-tightening rules on compensation and disclosures, saying they won’t leave enough advisors to serve the needs of Canadian consumers and investors. Without advisors at their side, they warn, Canadians are at risk of not having enough money invested in the markets, losing money due to poor financial planning, and other negative outcomes.

But Pereira insists the “advice gap” narrative is a myth. While there may be advisor shortages in other markets, he says the numbers in Canada paint a much better supply-demand picture for financial advice.

“Based on conservative estimates, the ratio of mutual fund- or securities-licensed advisors and portfolio managers to Canadians is around one per 380. That’s four times more than the number of advisors per capita in the U.S., and five times more than in the U.K.,” he says. “Do they have advice gaps? Absolutely. … It’s not possible for one advisor to provide advice to 1,250 people. That’s not what we have in Canada.”

The mathematical upshot, Pereira says, is that Canada can lose half its advisor force and still have double the per-capita advisor population in the U.S. And while a considerable number of professionals and registrants are expected to “grey out” of the workforce, he notes the average age of financial advisors has stayed within the early 60s range since he started out, which suggests the pipeline of new advisors has kept up with people exiting the industry.

The “competency gap” isn’t an “advice gap”

Some investor advocates have voiced concerns about Main Street investors being underserved with poor advice from unqualified persons. Pereira agrees it’s a problem, but is adamant that people shouldn’t confuse that issue with the “advice gap” debate.

“There are gaps in competency. And there are gaps in terms of client expectations vs advisor service delivery,” he says. “When Canadians go to a financial institution looking for advice, they’re often being sold product, not given advice.

“What we need is a better calibre of advisor per 380 Canadians,” he says. “But we’re sure as hell not going to get there when we’re arguing about embedded commissions, deferred sales charges, and all the chicanery that lets salespeople posing as advisors make a quick buck.”

From Pereira’s perspective, Australia offers some clues on how Canada can move forward. In trying to raise professional standards for advisors across the country, he says regulators in the Land Down Under moved too quickly, leading to too many advisors abandoning the business.

“There’s a lesson there,” he says. “You can go a little too fast, but that doesn’t mean you shouldn’t go down that path.”

As for the U.K., Pereira says advisors did get pushed out by overregulation, but that’s just half the story, as within a few years there were more advisors compared to before the change happened. He says the U.K. advice gap was there even before the Financial Conduct Authority (FCA) did its reviews, and the problem is that the number of advisors hasn’t grown fast enough to keep up with the country’s population.

“Compared to Australia, the UK has struck a much better balance [in trying to raise professional standards],” he says. “There’s an advice gap in the country, which was maybe exacerbated by regulation.

“Overall, the advisors that remain in the UK market are more trusted than before. Client satisfaction rates are better, complaints are down substantially, and the advisor practices currently still operating are more profitable,” he says. “When has it happened in history where an industry got its act together, actually raised the bar on transparency, introduced greater standards for proficiency, and ended up worse off in the long term?”