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Regulatory proposals that would ban embedded commissions as well as changes to the taxation of private corporations are poised to have negative consequences for Canadians, former federal finance minister Joe Oliver told the Independent Financial Brokers of Canada’s (IFB) Fall Summit in Mississauga, Ont., on Tuesday.

The prospect of banning embedded commissions on investment products — a regulatory change that securities regulators are currently considering — could reduce access to financial advice for many Canadian families, said Oliver in a keynote speech that kicked off the IFB’s two-day conference.

“Balance is needed, or we’ll end up with an advice gap in the mass market, and that will hurt the very people who most need protection — smaller, less sophisticated, middle-income individuals and families whose circumstances cry out for advice,” said Oliver, who is also former president of the Investment Dealers Association and former executive director of the Ontario Securities Commission.

Still, Oliver acknowledged the concerns that regulators have with the potential conflicts of interest that can result from the embedded commissions that are paid to advisors by financial institutions.

“One can understand regulators’ concerns,” he said. “However, we have to resist the nanny state inclination to try to protect everyone from everything that seems to pose a risk, regardless of the cost, the limits on freedom of choice, unintended consequences, and the unrealistic hope that we could achieve total safety through rule-making.”

Although it’s important for regulators to ensure that investors are protected appropriately, Oliver said, they need to be cautious about going too far as policymakers have a tendency to respond to a few instances of fraud or bad behavior by introducing sweeping regulations that create an onerous operating environment for all industry players.

“Political overreaction to scandals can lead the pendulum to swing too far, and rarely does it swing back to policy equilibrium,” he said. “However protective additional rules and compliance may appear to be, they invariably multiply costs, they can reduce efficiency, pare competitiveness, restrict freedom of choice and have uneven, unintended and occasionally perverse results.”

Another policy measure that’s poised to have negative repercussions, according to Oliver, is the federal government’s recent proposed changes to the taxation of private corporations. The proposals, which aim to eliminate certain tax planning strategies used by business owners to avoid higher tax rates, impact business owners who provide valuable contributions to the Canadian economy, he said.

“The afflicted are striving small business men and women burdened with operating expenses,” he said. “[They] borrow money, take risks, work long hours, hire workers, and save for a rainy day, or the opportunity to expand. They do it all without a pension, sick leave, maternity leave, paid holidays, employment insurance, job security, severance pay.”

By eliminating certain tax advantages for small business owners and private corporations, Oliver said, many of those individuals could decide to relocate to other jurisdictions. The result, he said, would be fewer businesses and jobs in Canada, lower levels of savings, less discretionary spending, and lower growth and productivity.

“Inevitably, tax policy drives behaviour,” Oliver said. “In this case, it would be problematic.”

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