As more countries move to ban embedded commissions in financial products, advisors in Canada should prepare for an ongoing debate on compensation practices in this country, a panel of experts said on Wednesday.

In a discussion on the gravitation towards fee-based compensation at the Financial Planning Standards Council’s Vision 2020 conference in Toronto, panelists were divided on the direction of compensation practices in Canada.

Marc Lamontagne, a partner at Ryan Lamontagne Inc., suggested that fee-based compensation is likely to become more prominent in Canada. He noted that many countries that are taking steps to address the conflicts of interest presented by commissions.

“The trend is there,” Lamontagne said. “The reality is, there’s an inherent conflict of interest, or a bias, built into the compensation system.”

If financial planners want to be viewed as professionals, he said they must move away from commissions and begin charging fees.

“This debate is not going away,” Lamontagne said. “It’s going to be ongoing, until we’ve achieved full transparency.”

Representatives from financial planning organizations in Australia and Britain discussed the experiences in their respective countries involving the banning of embedded commissions.

Deen Sanders, deputy CEO at the Financial Planning Association of Australia, said research conducted by the FPA found evidence that commissions were leading to biases in the advice that clients were receiving.

“We found clear evidence that the commission models of advice were biasing the placement of particular products, and having an impact on clients,” he said.

Kevin Regan, executive vice-president of financial services at Investors Group, argued that the environment in Canada is different from those in Britain and Australia. He said there’s not currently a problem with compensation practices in Canada.

“I see clients reasonably happy, I see disclosure evolving, I see product changing, I see opportunities for advisors to structure their businesses in various ways,” Regan said. “I see a robust, very healthy environment.”

He said it wouldn’t make sense for Canadian regulators to follow in the footsteps of those jurisdictions.

“I have trouble taking their approach to resolving a problem that they had into the Canadian context, where I have yet to see the problem defined,” Regan said. “I fear, deeply, a regulatory answer.”

Rather than banning embedded commissions in Canada, Regan said a more appropriate solution would be to improve disclosure of advisor compensation.

“I think an advisor ought to be able to look in the eye of a client and tell them how they’re paid,” he said.

But Sanders argued that efforts to improve disclosure haven’t been effective in any other jurisdiction around the world.

“Don’t expect disclosure to save you,” he said. “Consumers are not able to engage meaningfully with most of the existing disclosure documents.” He pointed out that these documents are often written in legal language rather than plain English, and that few consumers take the time to read them.

IE