Re: Report slams high mutual fund fees,, Feb. 25, 2015.

It’s true that Canadians need to prepare for retirement, but let’s deal in facts and not fiction. According to Sound Advice, a PricewaterhouseCoopers LLP report published in 2014, and Econometric Models on the Value of Advice of a Financial Advisor, a 2012 report from the Centre for Interuniversity Research and Analysis on Organizations, Canadians who work with a financial advisor save three to four times more than those who do not use a financial advisor.

The average Canadian invests approximately $2,500 a year. The embedded trailer commission paid to financial advisors is at a rate of 0.4% to 0.8% a year. This translates into consumers paying anywhere from $10 to $20 annually for this professional financial advice. Financial advisors’ compensation is only one part of the fee that is charged to consumers, so let’s be careful to state all the facts.

According to the article entitled “Report slams high mutual fund fees” published in on Feb. 25, the Canadian Centre for Policy Alternatives (CCPA) published a report recommending that trailer fees be capped or banned, which would force investors to pay their financial advisors directly.

This recommendation indicates clearly that the CCPA does not understand the role that advisors play. They do not simply execute trades; in fact, members of Advocis are professionals. That’s because financial advisors meet and spend time with their clients, gathering information about clients’ financial health and their financial goals (i.e., to own a home; to put their children through school; to prepare for retirement; and to provide for their loved ones in the event of serious accidents, death, or untimely market downturns). These are all things that a pension plan cannot do.

Advocis is not opposed to private and public sector solutions, but they have to be well thought out. Pension plans do not come with individualized financial advice; so, to make a straight-line comparison between pension plans and financial advice, as the CCPA did in its report, is an attempt at sensationalism. If we place obstacles in the way of the average Canadian who wants access to financial advice, then policy-makers are doing a disservice to Canadians. Why would we want to do such a thing?

Banning commissions will result in less financial advice to average Canadians, which means less wealth accumulation and less preparedness for unfortunate events that happen in life. Trailer fees are a means of ensuring that consumers continue to have choice; Advocis has yet to hear any clear, simple, and reasonable argument from the CCPA — or anyone else for that matter — as to why removing consumer choice is the way to go.

Furthermore, consumers of financial advice have the choice of switching from an embedded fee structure to an hourly fee or a percentage of assets under management structure at any point in the relationship with their financial advisors.

Advocis is in favour of a well-reasoned approach to consumer protection. In our opinion, this does not include the banning of commissions. Let’s look at the facts and let’s expose the fiction. If policy-makers are trying to enhance Canadians’ wealth and ensure they have choice, then the recommendations the CCPA has put forward make very little common sense.

Greg Pollock
President and CEO, Advocis