The global financial advisory industry is moving slowly toward banning commission payments to advisors. Canadian regulators floated this idea in their 2004 fair-dealing model (FDM) concept paper. After shedding the commission ban, the FDM was implemented in 2009 as National Instrument 31-103.

I didn’t expect regulators to return to the idea of a commission ban any time soon. But the industry, which opposes the notion, could bring it on sooner than expected if industry members don’t improve transparency.

The industry’s rationale for batting down the commission ban proposal was that Canada should not regulate business models. But the implicit trade-off is that better transparency should prevail. Although many stakeholders publicly acknowledged their preference for improved disclosure, recent evidence suggests that the industry isn’t warming to this idea.

In June, the Canadian Securities Administrators (CSA) penned the second draft of amendments to NI31-103 to improve disclosure in client/advisor relationships. The CSA proposes to put trailing commissions in dollars and to show personalized performance. I applaud these proposals.

We owe it to clients to deliver the best solutions possible to meet their goals with honesty and transparency. Some call this wishful thinking. I call it thinking and acting like fiduciaries.

Investors have endured a long period of poor market performance, while the industry has made little progress on transparency, which damages the trust relationship with clients. Clients are more aware of fees, have grown unhappy with returns and many have left their advisors and/or investments for what they hope are greener pastures.

Rather than supporting the CSA’s proposal to start repairing this damaged trust, the industry – with few exceptions – has put up roadblocks through comments on the CSA’s recommendations. The industry’s efforts to protect the status quo just might prompt renewed efforts to ban commissions altogether.

For most of my career, I’ve promoted full and plain disclosure as being key to attracting wealthy clients. But the industry hasn’t taken this seriously. Yet, improved disclosure need not be complex.

Many dealers’ back-office systems already house many of the logistical requirements to disclose commission in dollars. But even if the industry’s complaints of costly information-technology (IT) system changes are valid, why not start with an approximation?

A client holding $100,000 in mutual funds and paying 1% in trailers could receive a disclosure that reads: “Based on your current holdings and market value, commissions paid to your financial advisor and his/her dealer are expected to be approximately $1,000 over the next year.”

Update this statement once annually and get more precise as IT systems allow. As for performance, many fund companies already offer personalized performance rates of return on their wrap or fund-of-funds offerings. And many dealers’ back-office systems have performance-reporting features that dealers can turn on or off.

Continuing to avoid efforts to improve transparency will prompt either a commission ban or even more unhappy clients. Neither outcome is good for business.

Dan Hallett, CFA, CFP, is director, asset management, for Oakville, Ont.-based HighView Financial Group, which designs portfolio solutions for advisors, affluent families and institutions.

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