Re: Letters to the Editor: Confusion at Advocis?, by John De Goey, investmentexecutive.com, May 10, 2016
Re: Letters to the Editor: Higher professional standards needed, by Greg Pollock, investmentexecutive.com, May 6, 2016
Re: The wrong side of history, editorial, Investment Executive, May 2016
I am pleased to respond to John De Goey’s letter to the editor, which questions whether raising professional standards for financial advisors would have a similar effect to banning commissions in terms of reduced access to financial advice.
The short answer is no, for the following reasons:
Eliminating embedded compensation creates a lasting, if not permanent, industry impact. It essentially shrinks the market by pricing advice beyond the reach of millions of investors, for which upfront hourly fees of $100 to $300 are simply unaffordable. As a result, advisors are left to compete for a considerably smaller pool of higher net worth clients. Based on basic principles of supply and demand, a diminished market means fewer advisors are able to sustain viable businesses. In the U.K., where 11,000 advisors — representing an estimated 11 million consumers — have exited the industry since commissions were banned, regulators are now reconsidering the merits of embedded compensation. This past January, Tracey McDermott, Acting Chief Executive at The Financial Conduct Authority had this to say: “…what we do want to look at is actually what is the best way of delivering advice and guidance across the market, so I wouldn’t rule out that there may be some element of commission.”
Conversely, raising proficiency standards has no negative impact on the size of the market for financial advice. In fact, one might expect that in fostering greater public confidence in the competence and integrity of all financial advisors, more Canadians would be inclined to seek out advice. While, it’s true that some advisors may not immediately meet new proficiency requirements, bridging options can easily be put in place to facilitate the transition. And, even if there are advisors who choose to leave the profession rather than meet enhanced requirements, this would have a limited and temporary effect as new advisors enter the industry to fill ongoing market demand.
Rest assured, Advocis’ views on these issues are entirely consistent with one another. They are rooted in our unwavering belief that Canadians at all income levels deserve access to trustworthy financial advice from qualified professionals.
Greg Pollock is president and CEO of Advocis, The Financial Advisors Association of Canada.
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