Professional planning faces obstacles

The future of financial advice will be driven by a shift to holistic planning, but there are still significant challenges to overcome on the road to professionalism, according to a panel of distribution insiders, speaking earlier this week at the Univeris Client Conference in Toronto.

Advisors are increasingly realizing the value in expanding their service offerings, but face impediments, ranging from compensation structures to the fractured regulatory environment.

“Planning is still very much alive. In fact, it’s blossoming,” said Scott Sinclair, president and CEO of Aegon Dealer Services. “The smart advisors are building businesses, hooking up with insurance specialists and mortgage specialists. They’re broadening their exposure and their businesses so they are not one-person businesses, but are integrated businesses.”

But one of the problems of this broader business model is that it increases the burden of compliance, as the advisor may be answering to the IDA, the MFDA and their provincial regulators for both securities and insurance.

These multiple layers of regulation are driving consolidation in the industry, as advisors bulk up in an attempt to achieve economies of scale. Sinclair said history is bound to repeat itself, however, pointing to the re-emergence of boutiques that followed concentration within the IDA channel.

“I think in the short term, over the coming five years, we’re going to see a very tight consolidation take place,” Sinclair said. “By the 10th year, I think we’ll see a real breakout into the boutiques again. The regulation and economics is forcing the consolidation.”

Perhaps a better means of addressing the issue would be consolidation amongst the regulators themselves. The IDA has expressed interest in merging with the MFDA, but so far has been rebuffed. Far less likely would be a merger of the various provincial securities regulators, which are largely held apart by politics. Even more remote is the likelihood of Sinclair’s recommendation, that all of Canada’s financial regulators merge, bringing insurance and investment oversight together as one super-regulator.

“I really don’t care if the IDA and MFDA come together. I’d be really interested in when they fold in CLHIA, etc.,” he said. “If we’re talking about planning, then why don’t we? When you look at what best serves the client and making sure the client is being looked at from a full perspective, I think, regulatory-wise, it would be a great thing if they came together, both provincially and across the different jurisdictions in terms of product. That for me is ultimately where the regulation needs to go.”

Along with the political hurdles such a move would face, there are cultural issues unique to each regulatory group.

David Baird is president of Ten Star Financial Services, which consists of a mutual fund dealership as well as managing general agency. He said would prefer to see the insurance industry brought into line with the mutual fund industry.

“In the mutual fund world, where they have to deal with one dealer, you’d call it off-book trading,” Baird said. “Off-book trading is normal practice in the life insurance world. We have a major problem that the regulator has not come up to the table and helped us to control that.”