Unintended Consequences – Will Cooler Heads Prevail?

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I have written in the past about fee only accounts. I offer all of my clients the option of fee based or original compensation on their accounts and contrary to what certain institutions want you to believe, my experience is that the vast majority don’t want fee based. For some reason the industry is trying to move in the fee direction. This is the second piece of independent research that I have read that strongly recommends not dropping the original compensation model.

Rather than going on and on as I do on this matter, I decided to just present the article as written in Advisor.ca on research from the University of Calgary. The title of their research is A MAJOR SETBACK FOR RETIREMENT SAVINGS: CHANGING HOW ADVISORS ARE COMPENSATED COULD HURST LESS-THAN-WEALTHY INVESTORS MOSTClick here to go to the original Advisor.ca article.

Research shows banning commissions is not the answer

Advisor.ca Staff / April 5, 2016

New research from the University of Calgary’s School of Public Policy finds that banning commissions will restrict access to financial advice for those who need it most.

The research notes banning third-party embedded compensation on the sale of financial products would constitute “a massive set-back for individual wealth accumulation and, ultimately, for the economy.”

It adds, “unbundling the cost of financial advice from that of financial products […] makes accurate comparisons of total cost of ownership between financial intermediaries inaccessible to individual investors. Comparability is a necessary condition for market efficiency.”

Further, “countries where financial advice has been unbundled from financial products, either as a result of market forces or regulatory fiat, have seen the opening of a large advice gap, and an increase in the total cost of the services for a large proportion of retail customers.”

Instead of banning commissions and creating an advice gap, a more effective solution to potential conflicts of interest is to enhance the proficiency and professionalism of advisors. For instance, there should be a standardization on the use of titles.

“Ensure titles are not misleading and reflect accurately the nature and scope of the services provided,” notes the research.

The paper also recommends a stronger emphasis on continuing education programs.

Greg Pollock, president and CEO of Advocis, says the association supports the research. “We encourage regulators and policymakers to consider this study when making a decision that could unintentionally prevent thousands of Canadians from accessing the professional advice they need to prepare for retirement.”

Your Independence Matters

Terry McIntyre is an independent investment advisor with Manulife Securities and can be reached at: 905-846-9060, ext.3838, email: Terry.McIntyre@manulifesecurities.ca or website: www.terrymcintyre.ca