Briefly: “U.K. reforms seen shrinking industry” and more of Wednesday’s news

Canadian advisors are not the only ones facing regulatory reform. In the U.K., the Financial Services Authority (FSA) launched the Retail Distribution Review (RDR) back in 2006. Now those in the industry are worried that policies that come out of this process will reduce the number of independent financial advisors.

Among the recommendations that came out of the review was that consumers needed greater clarity about whether the advice they were receiving was independent or sales motivated.

“To many in the industry the FSA’s feedback statement of last November was a fudge, blurring the lines between sales and advice, while to others it showed that the FSA had kept its consumer focus by offering a number of routes to market,” said Sarah Luheshi, a senior consultant at Watson Wyatt.

At a debate hosted by Watson Wyatt, 68% of the 50 senior insurance executives in attendance agreed that “regulatory restructuring of distribution will not increase consumer uptake of financial services products.”

Thirty per cent of those in attendance said the number of independent advisors would fall by at least 25%. Forty-seven per cent said there would be a decline, but that it would be less than 25%.

“Most people in the industry do not believe consumers will gain a better understanding of how they can access financial services products because of the changes proposed in the RDR, nor do they believe that consumer uptake will increase,” said Luheshi. “The great concern is that the RDR involves significant costs but with no or little benefit to the industry or its customers. It appears that the RDR will not achieve the goal of bringing financial advice to a wider market.”

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Student debt hits record

Think of them as future clients with big problems: Canadian students, past and present, collectively owe more than $13 billion in federal post-secondary education debts.

“The students and families who can least afford to pay for post-secondary education are carrying a $13 billion burden,” said Katherine Giroux-Bougard, national chairperson of the Canadian Federation of Students (CFS). “Saddling a generation of students with billions in debt will have far-reaching implications for Canada’s economy and socio-economic inequality.”

The CFS has called on Finance Minister Jim Flaherty to address this debt-load by increasing funding to universities and colleges.

Call it a crass marketing opportunity, but the sheer weight of that debt may be useful in demonstrating the utility of registered education savings plans.

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BCSC bans, fines accountant

The BCSC has imposed a 15-year ban from trading securities against an accountant who distributed millions of dollars in debentures to investors. Henry Jung also faces a $70,000 fine.

The penalty stems from a November 5, 2008, finding that Jung had distributed almost $3 million in debentures to 130 investors in seven provinces. Jung also failed to file insider trading reports for hundreds of trades, totalling about 5.7 million shares, in Bright Star Ventures Ltd. securities.

The panel found that he was a de facto director of Bright Star, despite his claim that he was simply the office manager.

“In his submissions, Jung minimizes his role in the debenture distribution, saying that all he did was sign them,” the hearing panel said. “He apparently sees no link between his role in directing the debenture financing and the losses suffered by investors. For these reasons, Jung is not, in our opinion, currently fit to participate in public markets and were he to continue to do so, he would present a risk to investors.”

(01/21/09)