Can you imagine a world where the only people who can afford quality financial advice are the wealthy? Where countless average Canadians simply wouldn’t have access to financial advice from a qualified financial advisor because they can’t afford the direct fees? That scenario may soon become a reality if the CSA’s proposed ban on embedded commissions goes through.
If you work in the financial advice or financial planning business in Canada, you’re likely aware of this issue. But to recap, in January 2017, the Canadian Securities Administrators issued a consultation paper proposing a ban on mutual fund embedded commissions, with the general idea that such a ban would protect consumers from being misled by advisors. The CSA opened up a 150 day consultation period, ending June 9, in which thoughts on the issue could be submitted for consideration.
, the Financial Advisors Association of Canada, immediately took an aggressive stand against a ban and began to spread the word that eliminating embedded commissions would be a massive mistake. We believe people deserve a choice in how they pay for financial advice – whether through commissions or direct fees – and we think that as long as those options are transparent, there should be no issue. Taking away that choice is just not right.
Such a ban would severely limit access to financial advice for the average Canadian. Someone living on a tight budget might not have extra cash in their wallet to pay direct fees to a financial advisor – so they may opt out of seeking professional financial advice altogether. And as an oft-cited independent Cirano study has shown, using an advisor has clear benefits: Working with a financial advisor can increase the value of assets to nearly four times more than those who don’t use an advisor. The more we can do to increase the wealth of the country as a whole, the better.
But would having to pay direct fees really deter people from using an advisor? Recent research from the Gandalf Group says yes: 24% of all investors surveyed said having to pay a direct fee for financial advice would indeed be a disincentive for them to seek advice.
To fight the CSA’s proposed ban, Advocis embarked on our Financial Advice for All campaign in early 2017. As part of the campaign, Canadians can sign up on Financial AdviceForAll.com and, through the website, send a letter to their local provincial politician, letting them know that a ban on embedded commissions would be a devastating mistake. If you’re an advisor and you haven’t visited the site and sent a letter yet, we strongly urge you do so. And we strongly urge you to encourage all your clients to do so. The future of your profession is at stake.
When the CSA’s consultation period ended on June 9, Advocis made sure to get all of these important points across in our official submission. We made all the perils of a ban very clear, but we also proposed a better solution: professionalization of financial advice.
Right now, anyone can call themselves a financial advisor. Unlike doctors, accountants and lawyers, financial advisors don’t have one professional body overseeing and regulating the profession. That’s why Advocis is pushing for a ‘professions model,’ which would replace any need for a ban on embedded commissions and allow Canadians to retain a choice in how they pay for financial advice.
A self-regulating professional body would ensure that everyone who calls themselves a financial advisor or financial planner would have to meet ongoing proficiency standards, satisfy continuing education requirements and adhere to an enforceable code of professional and ethical conduct.
This quote from our submission to the CSA sums it up nicely: “Professional advisors must be involved in their own regulation and, as professionals, must be subject to the highest of standards – including a duty to act in their clients’ best interests. In doing so, we can preserve choice and access to advice for all investors, regardless of their wealth, while increasing the quality of the advisory relationship that is so critical to achieving financial independence.”
Greg Pollock is the president and CEO of Advocis, which advocates for professionalism and consumer protection, and has more than 12,000 members in 40 chapters nationwide.