The reforms taking place in the financial services sector in the European Union, the United States and Australia are not all applicable to Canada, attendees at Advocis’s third annual symposium were told at the November gathering in Toronto. “It would be premature to conclude that, just because the EU deems it necessary to impose a fiduciary standard on advisors, Canada should do the same,” Greg Pollock, president and CEO of Advocis, said in his address that opened the day-long exchange of ideas.
“The changes being considered in the United Kingdom, the U.S. and Australia on remuneration and duty of care are proposed solutions for problems in those jurisdictions driven by the perception in those jurisdictions that the financial industry has not been serving consumers as it should,” he added. “That is not the case here in Canada.”
Dean Owen, Advocis’s new chairman of its board of directors, urged Canadian regulators to resist the temptation to adopt changes just because other countries are doing so, and instead allow Canada to become a leader in its own right. Before any changes are considered, they should establish whether problems exist and all stakeholders should be consulted, he said. “And if we take an evidence-based approach, we will see that these problems don’t exist here.”
In another session, Charlie Sims, president and CEO of Mackenzie Financial Corp., noted that Canada’s two remuneration models, embedded advice and fee for service, are comparable in costs to the consumer. “We’re concerned that if we removed the embedded advice model, we’d also remove the ability of many Canadians to access financial advice,” he said. “We believe the cost is fair for the services that are rendered.”
“The U.K. and Australia are planning to ban third-party commissions after concluding that products were being mis-sold. I don’t see the same problems on the Canadian landscape, or a reason to ban third-party commissions. Did their regulators over-react?”
The U.K. and Australia are planning to make fiduciary duty a statutory requirement, while in Canada, courts currently determine on a case-by-case basis whether a fiduciary duty existed. The first step is to identify whether there is a problem here in Canada, Mr. Sims said. “Fiduciary duty is currently applicable to financial advisors in Canada,” he said, and legislating advisors as fiduciaries “would increase costs without benefit to consumers when we already have a perfectly functioning fiduciary standard.”
Canada has been insulated to some extent from the problems that are currently facing other jurisdictions. But the Eurozone crisis, the mortgage finance debacle in the U.S. and the market meltdown of 2008 have collectively taken a toll on investor confidence, Mr. Sims noted. This and the complexity of financial products that are being developed for the needs of an aging population have raised questions about the role financial advisors will play going forward.
“The No. 1 reason people consult financial advisors is for advice on saving for retirement,” he said. Citing data from the IFIC Pollara Investor Survey 2011 and Ipsos Reid’s 2011 survey on The Value of Advice, he noted that advised consumers are twice more likely to save early and often than other investors, they feel more confident about their investment choices and they stay with their financial plans through economic downturns.
“They also have the highest growth of assets in their portfolios,” he added, “and have a higher participation in tax-advantaged registered plans.”
Financial advisors are clearly providing a valuable service to their clients, Mr. Sims said. “But in this changing environment they will need to keep their skills up to date and increase their areas of expertise.”
The need for increased consumer protection has resulted in new supervision requirements for life insurance agents in British Columbia. New life agents now have to work for two years under the supervision of a broker with five years or more of experience, Gerry Matier, executive director of the Insurance Council of British Columbia, told the symposium.
The ICBC is also pushing for more regulation of managing general agencies. Mr. Matier noted a lack of willingness on the part of MGAs to report problem agents. “We want to make it easier for MGAs to report bad agents to the regulators,” he said. MGAs also need to review the changing practices of the agents with whom they do regular business. “If an agent brings in a new form of business, an MGA needs to ask questions about his qualifications.”
The focus on investor protection is not something that will go away, said Phil Howell, CEO and superintendent of the Financial Services Commission of Ontario, but savvy advisors will become pro-active in this area. “The fair treatment of consumers is integral to the performance of capital markets, and you can do your part by providing clients with clear information before, during and after the point of sale; by reducing the risk of inappropriate sales; and by managing clients’ expectations.
“It will take effort and vigilance on your part,” he added. “It may mean going farther than what’s in the policies and procedures handbooks. But you’ll be demonstrating that you’re acting in the public’s best interest, and it will enhance your image and credibility.”