Compensation does not determine good advice, readers say

Last week’s opinion piece on commissions by Jason Pereira continues to provoke tons of reader feedback. Pereira believes that Canada should follow the United Kingdom’s lead by banning upfront commissions from all products.

This week, many readers disagreed with Pereira’s stance. Here is what some of you had to say on the subject.

Richard Knowles, a senior associate and senior financial planner with Partners in Planning in Vancouver, writes:

“With respect to the UK, we are in Canada. The UK has internal issues and compliance that we will likely never have in our worst nightmares. We are basically a different (and much newer) system with different neighbours, different ethics and “old school” friendships and, well, just different and better. If the problem is regulation and monitoring bad advisors, then we have chosen to deal with the problem, not the symptoms, by using a far smarter system of checks and balances.

Our firm and many well-respected independent and established firms abide by severely imposed infrastructure of review and audit by provincial regulators to assure consumers are protected. It is working brilliantly.

If the problem is saving costs to the client, then anyone can argue the basic tenet: you get what you pay for.

Shawn Flannigan, a financial security advisor with Freedom 55 Financial, offers up this opinion:

“This type of move would be, in my opinion, the downfall of financial advisors. The only ones who could then afford financial advice from a professional advisor would be the upper-middle class and the affluent.

Most insurance and financial advisors care about their clients and do the best job they can for each of them. When bad advisors are found, we must deal with them severely. Look at the last cases where truly criminal advisors stole, lied, abused client trust and destroyed the lives of many people. How are they punished upon conviction? A slap on the wrist. Anywhere from six months to five years and with parole and after time is served, they are out on the street or in the Cayman islands. They should be kept in custody until all funds are returned or twenty years. Maybe then you can stop white collar crime.

How can a family with a net income of $50,000 afford a consultation fee or ongoing fees? The deferred sales charge on funds is the only way for these types of families to get advice and written proposals. Charging fees will make it too hard for the average person or family to get the help they need to make wise investment and insurance purchases.

I have a large book of clients who earn $100,000 of net income. They know that if they take my advice, I get paid a commission because I have a personal declaration form that the client signs stating how I get paid and why.

Maybe the people suggesting the changes should trade shoes with advisors for six months to get a good learning experience in our business.”

Ed MacDermaid, CFP, has this opinion:

“To suggest that by merely changing the way compensation is earned will fix any problems is ludicrous. The problem does not lie with the commission as much as it does with the advisor and the suppliers. The author seems to believe that the advisor is the only one who is “selling” product for all the wrong reasons.

In my view, the fund companies and, in particular, the banks, are the biggest culprits. The tiny amounts earned by the advisor are dwarfed by the huge profits turned in by the manufacturers. Who has created the linked notes that so few people understand and even fewer realize profit from? Who has created product that appeals to the basest instinct of investors? Who launches massive marketing programs and have succeeded in turning the Investment products into little more than a commodity? Do the greatest benefactors of the industry promote a level playing field which demands that the products they produce are always client centered?

No, that is left to individual advisors who are being strangled by regulation all the while being forced to pay for the high costs associated with it.”

Finally, Richard Orviss leaves us with these thoughts.

“Some writers seem to think their particular brand of ‘correctness’ is suitable for all and so should be rammed down everyone’s throat. I totally disagree. There is plenty of room in our marketplace for a wide variety of compensation models. As an advisor with over 40 years’ experience in financial services — from front line to the executive office — I believe that the only failing has been lack of full disclosure. I believe that we should require full disclosure and then let the marketplace figure out what compensation model works best in each situation. Let the client decide how much is comfortable for the products and services provided.”

Do you agree or disagree with these readers? E-mail your thoughts for future publication to editor@advisor.ca or start a forum discussion with your peers here.

Read these as background articles. Advisors react to commission ban idea, by Steven Lamb, published on July 6, 2009 and Re: Opinion: Canada should ban commissions too, by Jason Pereira, published on July 2, 2009

(07/10/09)