Canadian regulators should scrap commissions and enforce a fiduciary standard on advisors in light of new data from across the pond, an investor advocate says.
In spite of warnings that the number of advisors would plummet with regulatory reforms, the number of advisors in the UK has returned to its pre-reform level, the UK’s Financial Conduct Authority (FCA) said, as advisors have been returning after raising their professional qualifications.
“[The reform] wasn’t just embedded commissions and sales structures, it was also about raising proficiency," said Ken Kivenko chairman of Canada's Advisory Committee for the Small Investor Protection Association. "A lot of articles said people were leaving, but they really should leave because they never really were advisors.”
Canadian regulators are considering adopting similar regulatory changes – including banning certain commissions and requiring a best practice fiduciary standard for advisors. Opponents to such reforms have argued this would cause advisors to exit the industry and leave Canadians underserved.
In light of the UK numbers, Kivenko said that those concerns now seem overblown. "Any time you disrupt a system like the UK did it’s going to take two years [to see results], because it’s a shockwave, but once the shock is over they are going to be better off,” Kivenko told Wealth Professional.
The FCA said in July 2013 there were 32,690 retail investment advisors working in the UK, a number within the range predicted by independent researchers commissioned by the FCA’s predecessor, the Financial Services Authority. The last time the number of advisors was counted, in December 2012, the number of advisors was 31,132.
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“Today’s figures show that those looking for financial advice still have plenty of options open to them," said Clive Adamson, director of supervision at the FCA. "What’s more, by establishing standards across the industry we are helping to build confidence by reassuring consumers and raising the profile of the advisor profession,”
In late June, Canadian advisor association Advocis noted that some reports had suggested that the UK had lost 25% of its advisor distribution network and that as much as 80% of UK consumers were no longer able to access financial advice.
The UK rules, which came into force on 31 December 2012, required retail investment advisors to attain a higher standard of qualification, adhere to ethical standards and carry out continuing professional development. Advisors were required to obtain independent verification that they are meeting the standards in the form of a statement of professional standing from one of eight accredited bodies.
Six months since the introduction of the new rules, 97% of advisors have the appropriate level of qualification, the FCA said, with the final 3% being recent entrants who are still studying within the time frame permitted by the rules. This stands in contrast to 2010 when less than half of all advisors were qualified to today’s standard, it added.