Quit talking and get regulating: IAP

Quit talking and get regulating: IAP

Quit talking and get regulating: IAP

The IAP is pointing to an increase in advisor proficiency in the U.K in poo-pooing arguments about the potential negatives attached to any regulatory overhaul here in Canada – including a ban on embedded commissions.

In its annual report, released Wednesday, the IAP, an advisory panel to the OSC, says it is high time Canadian regulators quit the talking and get acting, implementing what it deems as essential reforms to the financial services industry.

“The slow pace of reform in Canada is unacceptable. It is time to emulate regulators in the U.K. and Australia and ensure that Canadian investors enjoy the same level of investor protection,” says the report.

The panel wants Canada to follow the lead of these countries claiming benefits have been seen since embedded commission were banned, professional designations reformed and proficiency standards improved.  

“Early reports of the new regime in the U.K. are encouraging in this regard and we intend to closely monitor developments in those jurisdictions where embedded commissions have already been prohibited,” it says.

An Ontario advisor, who wished to remain anonymous, is outraged by this claim, arguing that it is not more regulation that Canada needs, but rather a more efficient national regulatory body (instead of the existing one-per-province) with adequate resources to enforce a standardized set of rules.

“You can’t paint Canada with the same brush (as the U.K.),” he says. “We need to have one landlord with 10 tenants, instead of having 10 landlords and the tenants being the Canadian population. There are obstacles and problems but nobody is offering solutions ... Everybody is happy with mediocrity."

Similar to Advocis, this advisor believes a ban on commissions would further fragment the industry, leaving investors will less choice and therefore less advice. But, the IAP rejects this argument, saying that freeing up money paid out through commissions would allow investors to choose where and how their money is spent.

“With embedded fees prohibited and this portion of the MER no longer paid directly by the fund manufacturer to the dealer/firm, this money would now be available to the investor to negotiate and freely purchase advice services that the investor wants and needs,” explains the report.

The IAP report came one day after the CSA announced it would continue consultations on the future of mutual fund fees and statutory fiduciary duty, claiming ongoing industry dispute as a deterrent from implementing new regulation; a move applauded by Advocis.  

See related stories:

Advocis applauds CSA delay

Advisors get ready for a tougher IIROC in 2014

Consumer protection tops mind for Feds

  • John De Goey 2013-12-20 8:14:48 AM
    Good on the IAP. Couldn't agree more.
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  • John De Goey 2013-12-20 8:15:30 AM
    Good to see that the IAP has their priorities straight. I storngly agree with them.
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  • bob white 2013-12-20 8:31:33 AM
    When someone or a group who pushes so hard to say "the slow pace in unacceeptable" and who will directly benefit from the change, you have to be suspect as to who will benefit. Is caution to make sure the correct process is impliment wrong, and democratic? I think not!

    I woulk like to ask those who are in such a hurry and those who feel that imbeddded compensaion is so wrong, what is the tax implication to paying fees on Registerredd accounts like RRSP, LIF, RIF, TFSA etc if the fees are paid from the unbundellling? I will suggest a 1% fee, now becomes a pre tax cost of 1.5-1.3%. CRA would love this type of planning, and at the exxpence of the consumer.

    I say this is very poor planniing.

    There does not need to be unbundellin to be transparent, there needs to be disclosure.

    My best educated guess, with 37 yearss experience in the profession of serving Canadians in the area of insurance and financial planning is that the consumerrs that are spoken of, who want transperancy, are those who have significant wealth, and have the skill set to nagotiate to achieve a lower fee for service.

    I do both comission and fee based, and I have been disclosing for years the different methods how compensation is paid and the choices including fee only, and to date no one has chosen fee only and the clients I have convinced to be fee for service, because we can generate tax deductability of some of the fees, an elliminate trustee fees on registeredd acccounts, have a hard time accepting the idea of fees, when ultimately thier cost is lower than inbedded compensation.

    To date I have not read that anyone regulator, or lobby group clearly identify how the consumer will benefit from OUT LAWING inbedded compensation.

    I am all in favour of full and clear disclosure of compensation, and suggest that there be a signed decleration that the client, the advisor and dealer, and possible regulator who recieve that disclose the fee type chsen and the percentage of compensation, NOT how much, because that will take away the apples to apples comparison. percetages are verry clear as to what the fee/fees are.

    I recently competedd with a bank advisor who held themself out as a retirement specialist and proceeed to tell the client the planning I recomended, taking the difference in minimum and maximum LIF income and transfer to an RRSP after taking th eincome need, he said the client would use up the rrsp room they had. A person holding out to be RETIREMENT PLANNING SECIALIST should have a better understanding some simple stuff. He went on to tell the client the the fees i charde werre 2%, when his fees was 1.5%. infact the fees were inbedded at FE 0 1% to the dealer, 50% less than the fee for service, self acredited retirement specialist at the bank. What was interresting is that the initial client meeting dislosed all the fee stuctures, and why we would use the feee structure we ultimately didd, but the cient did nit remember, it waas the so called retirement specialist who was stirring the pot to try to get the sale, yes hes was selling to get compensated a ccomission (or call it a fee).

    Let be clear, the whole process we are going through has merrit to prrotect Canadians from those who will take advantage of cclients, the case I just presented was a prime example of a cclient needing protection for those who have no ethical practise. There was a lot of what was told to the client to sway the decission they would make, it was all the, this is the fee we charge by the portfolio managers, ( the advisor was not doing any investment planning) and knocked how we contructed the portfolio and the asset allocation, but never compared the historical performance, or the tax planning, or estate planning, or asked about how old her children are and what her income needs are. Just tried to get the sale.

    So, I say "slow down, listen to what makes sence for the average Canadian, not the wealthy, not the high net worth lobby group, listen to those who look after families, not just portfolio's .
    Making it law that to provide financial service, you have to belong to a recognized professional organization and have to be certified that you have the credentials to offer products and services and that there be a logo or symbol on the business card that identifies that and there is a national data base tha can varify the advisor is acreddited, and adverrtise on national TV that if the advisor does not have that logo, then do not do any business with them.

    I still remember the limited Partnership in Ginsing that paid 10-25% comission being flogged to the detriment to many Canadians, who could not afford the risk of that type of investment. But what regulations or ethics prropected those folks? None, over $25,000 investment and they were classified as sofisticated investors, advisor no ethics not a member of a recognized poffessional group.

    Yes we can and need to do a better job to make it clearer for Canadians, but let not be too hasty and make life alterring decissions with out clarity as to why, for who's benefit, and is it fair to all concerned.


    Bob White CLU
    serving Canadians since 1976
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