As regulators around the world take steps towards banning commissions on financial products and the professionalism of advisors comes under scrutiny, Canadian financial planners are being urged to adopt fee-based compensation models.

At the Canadian Institute of Financial Planners annual conference in Vancouver on Wednesday, Shawn Brayman, president of financial planning software firm PlanPlus Inc. pointed out that in recent years, countries such as Britain, Australia and the Netherlands have introduced new regulations banning financial advisors from earning commissions on the sale of products.

He urged conference attendees to prepare for the possibility that Canadian regulators could do the same, effectively abolishing the compensation model that most advisors rely on.

“Most of the people in the business here are driven by trailer fees,” he said. Many advisors have so far resisted the shift towards fee-based financial planning since there’s a perception that “no one wants to pay for planning,” Brayman added.

Indeed, in some countries, the ban on commissions has caused a substantial number of advisors to exit the business. Britain, for instance, has experienced an approximately 30% reduction in the number of financial advisors, due to the ban on commissions, along with new rules requiring advisors to attain higher educational qualifications. Another 20% to 30% are expected to leave the business by the end of the year.

“Advisors are leaving the business because it’s too much work to change the model,” Brayman said. “They’re basically trying to sell whatever book they have left, because it’s an easier thing to do than to actually reinvent themselves.”

Brayman admitted that it can be challenging to change your compensation model; especially for advisors who have relied on commissions for many years. However, he argued that making the switch can be rewarding for advisors.

He pointed out that in Australia, where new regulations banning commissions are set to take effect in July, roughly half of advisors have already moved to fee-based compensation models, and many are finding that their revenues have gone up as a result.

“They’re making more money than they did when they were using commission-based models,” he said.

There are also advantages for clients, who typically pay considerably less under a fee-based model, are subject to less bias, and enjoy greater fee transparency, according to Brayman. And, he argued that abandoning commissions adds to an advisor’s professionalism.

“There is evidence from thousands and thousands of advisors that there is a different way of doing it that works,” he said. “Let’s do what’s best for the client, and let’s be professional.”