While progress appeared to be made over the protection of job titles, an advisor has lamented the continued presence of “insidious” embedded commissions after years of debate.
John De Goey, portfolio manager at Wellington-Altus Private Wealth, welcomed the Ontario government’s commitment to ensuring anyone who calls themselves a “financial planner” or “financial advisor” has to have a mandatory credential.
He believes such a move is long overdue to prevent unregulated titles that allow “bad people to mascarade as good people”.
He said: “I think title policy will do more than CRM2 has done – but that’s because I don’t think CRM2 has done very much. It will have a positive impact. I’m disappointed it’s taken so long but I’m delighted it’s finally happened.”
Currently, there is no legislated standard in place for those who claim to offer financial planning or advice and, in all provinces except Québec, people who use the title “financial planner” are not required to obtain any credentials whatsoever.
Crucially, De Goey said it will differentiate between having a licence to sell a product and having credentials to offer advice.
“They are two separate things,” he said. “Up until now, regulation has evolved around whether you have the licence to sell a product. That does a disservice to people who are interested in comprehensive wealth management because so much of what is involved in good advice doesn’t revolve around product sales at all.
“In fact, the people who must be most frustrated, and I’m not one of them, are the fee-for-service advisors that already have a licence – all they do is sell advice. It’s an important distinction and it needs to be made.”
What is far less acceptable in De Goey’s eyes is the apparent full stop that has been put on the embedded commission debate. The CSA’s paper in June of last year failed to ban the fee method after a debate that had raged for more than a decade and split opinion.
De Goey said regulators should be ashamed that after 2005’s Fair Dealing Model reported it was likely that embedded commissions caused advisor bias, a decade of debate, round tables, white papers, comment invitations and discussions has resulted in the status quo.
He maintains that many clients don’t know what they are paying for and advisors have no interest in explaining it because to change would affect their fee model.
The ten years of debate between 2005 and 2015, said De Goey, was conducted the wrong way, comparing it to a lawsuit. “Would you have a decade of closing argument and then you introduce the evidence? That’s what happened.”
He also maintained that in the lead-up to the CSA’s position paper of June 2018, it said it now had evidence that embedded commissions cause bias and opened up comments. While admitting that many of the answers to CSA’s questions rehashed old arguments, he said the CSA “ignored the evidence, accepted the scare tactics and maintained embedded compensation”.
He added: “The reason I think it’s so insidious and why I still think we have a major problem in Canada, is because consumers don’t understand how much they are paying and advisors don’t seem to care. They are basically aiding and abetting the confusion.”
De Goey believes CRM2 has failed to distinguish properly between the cost of advice and the cost of the product and that, while it protests to the contrary, it isn’t in the mutual fund industry’s interest to help people understand.
He said: “When you have so many other good low-cost products like the mutual funds that are being offered by Vanguard, which are very good, actively managed mutual funds, no one is using them because they don’t offer embedded compensation.”
He added: “What the evidence seems to suggest very clearly is it’s not about active or passive, or funds and ETFs, this is about embedded or unbundled, and advisors clearly favour embedded. They don’t want to say that because it looks shady to say your preferred business model is driving your product recommendation.”
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