By keeping up the fight against an obligation to put clients’ interests first, the investment industry risks finding itself on the wrong side of history. When the industry denies that a business built on trust should be legally obliged to put clients’ interests first, that argument sounds like the tobacco companies of the 1970s insisting there’s no link between smoking and lung cancer. The faulty logic is staggering.

Suitability standards and caveat emptor might have been adequate in an age when financial advisors were called stockbrokers and relatively few people played the markets. But, since the industry has evolved into a mass-market, wealth-management business geared to selling the dream of secure retirement to ordinary Canadians while taking advantage of the decline in workplace pension coverage, the old approach is no longer good enough.

The imbalance in financial knowledge and sophistication between dealers and their clients has tilted dramatically in favour of the industry. Moreover, retail investing has evolved from a transactional, order- execution business into an advisory business with pretensions to the status of a profession. Yet, today’s legal and regulatory framework largely remains rooted in an era of stock jockeys and trading pits. And no matter how much you enhance disclosure, the power imbalance will never be righted.

The longer the industry clings to the traditional regulatory model, the bigger the risk to its future. The industry would be much better served by dropping its short-sighted opposition to higher standards and embracing the mantle of true professionalism.

By collaborating with regulators rather than resisting them, the industry can avoid wasting untold time and energy tilting against the windmills of common sense. A co-operative approach would position the industry to help shape the details of a fiduciary standard that is workable within current business models.

In a world in which robo-advisors continue to proliferate, there’s no certainty that today’s advisors will be successful in securing tomorrow’s clients. To safeguard its future, the advisory industry must be progressive.

It should start by welcoming higher standards.


Read the response from Advocis to this editorial: Higher professional standards needed, May 6, 2016


© 2016 Investment Executive. All rights reserved.