Advisors support compensation disclosure, survey suggests

(March 7, 2005) A majority of Canada’s financial advisors agree they should be required to disclose all compensation arrangements to clients, according to an informal online survey conducted by the ADVISOR Group.

Sixty-nine per cent of the nearly 400 advisors surveyed either somewhat agreed or strongly agreed that “advisors should be required to disclose all compensation arrangements to clients”. Thirty per cent disagreed (16% somewhat and 14% strongly). However, the results varied, depending on the advisor’s area of specialty.

Seventy-five per cent of financial planners and 74% of brokers supported disclosure, but only 47% of insurance specialists were in favour. Similarly, 77% of advisors on the IDA platform agreed that compensation should be disclosed, but only 59% on the MGA side agreed.

In addition, 73% of advisors agreed with the statement that “companies should be responsible for providing material on compensation disclosure for advisors to use with clients.”

Advisors were split when asked the question: “My clients never ask about compensation, so it’s not an issue for me” — 49% agreed and 50% disagreed.

Financial planners (57%) and brokers (53%) were more likely to disagree that clients aren’t interested in compensation, while only 31% of insurance specialists disagreed.

The compensation issue came to the forefront late last year after the country’s property and casualty insurance industry agreed to provide full disclosure on how its brokers are paid.

About a month later, Ontario’s insurance regulator sent out a detailed questionnaire to all of the country’s life insurance firms on their business practices, including advisor compensation.

Shortly after that, the Canadian Life and Health Insurance Association released a package of reforms aimed at increasing transparency, including a requirement that life agents disclose how they are compensated.

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The findings are based on the results of an Advisor Industry Panel survey conducted between January 27 and February 4, 2005. A total of 381 online interviews were completed with a response rate of 41%. The results are considered accurate within 4.5 percentage points, 19 times out of 20. The panel represents the recognized universe of the advisor community for the purpose of delivering questionnaires to collect advisor’s opinions on specific industry-related topics.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com