When do I have to worry about regulation?

The experts react

Nicholas Miazek vice president, Fiera Capital Corp., Calgary

Different compensation platforms will continue to exist. Some clients don’t like seeing the fee. And for them, management expense ratios will still make sense.

I don’t think somebody with a $25,000 or $50,000 portfolio has the ability to pay for financial planning and investment management on an hourly rate. Those costs will quickly exceed the ability of their portfolios to generate returns to offset it.

Rebecca Cowdery partner, Borden Ladner Gervais, Toronto

In 2014, it’s unlikely we’ll see anything more than a summary of the comment letters, and perhaps some additional requests for feedback. I believe they’re genuinely considering multiple options, and that a formal ban on trailing commissions isn’t a fore-gone conclusion.

Carol Lynde president & COO, Bridgehouse Asset Managers, Toronto

We support embedded fees as one way for investors to pay for advice. More than 50% of investors prefer to pay in this manner. The fund industry has grown to $1 trillion under this model, so we need to build on it, not dismantle it. The value of advice can still be articulated, even if the fees are embedded. It’s important that investors understand how they are paying, the amount and the value. With CRM II, that information will be disclosed. And we need to achieve comprehension. Advisors help do that.

Jolene Laing branch manager, ScotiaMcLeod, White Rock, B.C.

Fee transparency is not going to be a choice in the near term. So it’s absolutely necessary that more compensation go toward fee-for-service. The reason I was an early adopter is because I want my clients to know what they’re paying me, to understand why they’re paying me and to see the value I add. The only way I can get a pay raise is to grow their assets.

Michelle Alexander director of policy, Investment Industry Association of Canada, Toronto

We should wait for the new rules to be fully implemented and evaluate them after about a year, instead of introducing a wholesale revision to a system that isn’t fully in place. The discussion paper almost makes it seem as though CSA is implying CRM II and Point of Sale will fall short of their intended objectives.

Greg Pollock president and CEO, Advocis, Toronto

Banning embedded compensation will lead to less availability of advice, putting Canadians at risk of not meeting their financial goals. There should be a range of choices for people in different financial circumstances at different points in their lives. For wealthy investors, it’s probably more appropriate to have a fee-based advisor, or one who charges a percentage of assets under management. But for Main Street Canadians, the embedded compensation model works.

Martha Kane industry consultant, Vancouver

If the regulators have faith that CRM II is going to work, then why do they need to strip out embedded fees and make them another line item? What additional benefits are they hoping for?

And why is the focus just on embedded commissions? Why aren’t they also stripping out embedded management fees?

Also, with the movement toward fee-based accounts, is it just a matter of increasing transparency? Now that dealers are in control of what’s being charged, […] it may be that investors end up paying more. Often, advisors are seeing it as [an opportunity] to offer more services at higher prices, and I’m not sure if those additional services are consistently being delivered.

Craig Senyk director of portfolio management, Mawer Investment Management, Calgary

I’m hopeful the industry will change, but I’m [not terribly] optimistic. Just look at the significant opposition to the CSA proposals. There seems to be fear that if there is more transparency to the system, clients will desert the industry.

David Sung president, Nicola Wealth Management, Vancouver

We are [far] from an outright ban, but we wouldn’t be surprised to see significant changes in the next five to seven years. We anticipate continued pressure around full and plain disclosure.

Investors want fees taken out of the product to create clarity on how much they are paying, and what they’re receiving in return. With multiple provincial securities regulators, expect it to be slow getting everyone to agree. But having B.C. and Ontario’s securities commissions in favour of a super regulator will go a long way towards fostering change and building momentum.

Michael Lagopoulos former deputy chairman of RBC Wealth Management (retired), Toronto

I can’t see any justification for anything other than a totally transparent system. Nobody works for no compensation. Why not fully disclose the quantum of pay? Lack of full disclosure only fosters distrust.

Glorianne Stromberg retired securities lawyer, Toronto

Ultimately commissions will be banned; the sooner the better. The industry [should] be proactive in proposing a rationalized compensation structure. With the fees investors are paying, they’d be as far ahead putting their money in GICs and bank accounts.

[Regarding reduced advice access due to a ban], that’s balderdash. People who need advice will get it from the industry, family and knowledgeable friends. [Besides,] the promised advice isn’t really out there for a lot of people. The advice to buy X fund over Y fund isn’t really advice.

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Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.