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The Final Word

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The future of financial advice – consumers can’t afford a mistake

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BY GREG POLLOCK

 

Half of Canadians currently using an advisor would leave if the fee charged for advice were more than the embedded fee.

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The financial sector is on the cusp of potentially game-altering changes. Without question, there’s a lot of chatter  with  respect  to proposed changes. Not only is the second phase of the Client Relationship Model (CRM2 ) coming out this summer, but also significant changes are being considered with respect to statutory fiduciary duty, and a ban  on third-party  commissions.

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Regardless of the issue or the industry, you’re going to have differing opinions. The important thing is to base your opinion on fact not fiction (or chatter, as I prefer to call it) .

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Fact: Financial advisors care about their  clients’ best interests.

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At Advocis, we support increased transparency and we feel this is what CRM2 is doing – enhancing transparency with respect to fees and enhancing the conversation that takes place between the financial advisor and their client. Contrary to some opinion (the chatter we hear out there), financial advisors see their primar y responsibility as helping their clients prepare for the future.

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Fact: Consumers who work with a Financial Advisor  have more wealth .

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According to a 2012 study by the Center for Interuniversit y Research and Analysis of Organizations (CIRA  0), househol ds  who use a professional  financial  advisor  have  up to almost three times the median assets of non-advised household s. Similarly, the 2014 PricewaterhouseCoopers (PwC) study, Sound Advice: Insights into Canada s Financial Advice Industry, shows that advised households save up to 4.2 times more than non-advis ed households.

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Fact: Most Canadians do not have large sums of money to  invest.

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According to the PwC study, more than 90 per cent of all households  have less  than   $500,000 in financial assets and 80 per cent of house­holds  have  fewer  than   $100,000  in financial assets.  From  this, it’s safe to  say  that  a  large number of financial advisors work with clients who have small sums of money to invest.

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Fact: Banning embedded commissions puts consumers at risk.

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Banning commissions rest ricts the way Canadians pay for advice. Clients would be forced to either pay a fee-for-service or a per­ centage of assets under management. As a result, the same advice could cost them more than  they are currently paying.

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According to a 2013 investor study, Canadian Investors’ Perceptions of Mutual Funds and the Mutual Fund Industry, half of Canadians currently using an advisor would leave if  the fee charged for advice were more than the embedded fee.

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Fact:The ban on commissions being proposed in Canada has already been implemented  in other jurisdictions.

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The proposed ban strongly resembles regulato­ ry changes that have already taken place in the U.K. and Australia. Since the changes in the U.K., 25 per cent of advisors have left the busi­ ness, creating an advice gap. This means that many consumers no longer have a financial advisor to service them.

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Meanwhile, financial advisors who shifted their focus to high -net -worth clients are actu­ ally thriving in their business. This is primarily because these clients can afford to pay a fee for service. The problem is the consumers most in need of financial advice have been left orphaned.

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We at Advocis believe that consumers should have the option to make  choices that best suit their specific situation. By banning commissions, regulators would  be removing the choice in how financial advisors are com­ pensated and this directly affects a consumer’s ability to access this professional service.

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Change must not be seen as a game of follow-the-leader. Change must be based on fact, not fiction, and must  be well-reasoned and balanced. Let’s work together to get it right, because consumers can’t afford for us to get it wrong. 

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GREG POLLOCK, CFP is the President and CEO of Advocis

Forum Magazine

Advocis

March 2015

 

 

 

 

 

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One Comment

  1. A PERSONAL NOTE: WE ARE MOVING FROM PROFESSIONAL SALES TO PROFESSIONAL ADVICE IN THE FINANCIAL SERVICES SECTOR. PROFESSIONAL FINANCIAL ADVISORS HAVE A FIDUCIARY RESPONSIBILITY TO THEIR CLIENTS. FIDUCIARIES ARE COMPENSATED ON A FEE – FOR – SERVICE BASIS. THE FINANCIAL SERVICE INDUSTRY’S COMPENSATION MODEL IS COMMISSION BASED. THE PRACTICAL SOLUTION IS TO OFFER A CLIENT BOTH COMPENSATION CHOICES – 1 – A COMMISSION BASED COMPENSATION OR – 2 – A FEE – FOR – SERVICE BASED COMPENSATION. THAT DECISION WILL DEFINE THE PROFESSIONAL RELATIONSHIP BETWEEN THE CLIENT AND THE AGENT/ADVISOR. DAN ZWICKER – TORONTO 03 10 2015


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