De­ci­sive sup­port

Investment Executive - - FRONT PAGE - BY JAMES L ANGTON

al­though se­cu­ri­ties reg­u­la­tors are di­vided on whether the in­vest­ment in­dus­try should adopt a “best in­ter­est” stan­dard as pro­posed by the Cana­dian Se­cu­ri­ties Ad­min­is­tra­tors (CSA) and fi­nan­cial ser­vices firms largely have come out against such a stan­dard, fi­nan­cial ad­vi­sors ap­pear to sup­port the idea de­ci­sively.

In this year’s Re­port Card se­ries, In­vest­ment Ex­ec­u­tive ( IE) asked ad­vi­sors in each of the ma­jor dis-

tri­b­u­tion chan­nels — bro­ker­ages, full-ser­vice and mu­tual fund deal­ers, banks and in­surance agen­cies — whether they sup­port a pro­posal from the CSA to in­tro­duce a best in­ter­est stan­dard to gov­ern client/ reg­is­trant re­la­tion­ships. Over­all, the re­sponse from ad­vi­sors was de­cid­edly pos­i­tive: 74.1% of ad­vi­sors said they’re in favour of the pro­posal, with only 25.9% against it.

The high­est level of sup­port for the idea comes from ad­vi­sors at the banks: 94.1% of the branch­based ad­vi­sors said they favour the CSA’s pro­posal. The least favourable re­sponse came from ad­vi­sors at the full-ser­vice and mu­tual fund deal­ers; yet, al­most two-thirds (65.7%) of th­ese ad­vi­sors said they sup­port the reg­u­la­tor’s pro­posal.

Ad­vi­sors at the in­surance agen­cies were right in line with the over­all aver­age: 74.1% en­dorsed a best in­ter­est stan­dard. Ad­vi­sors in the bro­ker­age sec­tor were close be­hind: 71% favoured of the pro­posed stan­dard.

In ad­di­tion to a straight “yes or no” ques­tion about whether ad­vi­sors sup­port the best in­ter­est stan­dard, IE also asked ad­vi­sors for their com­ments on the idea in an ef­fort to gain some in­sight into how they view the is­sue.

Many ad­vi­sors who sup­port the idea of a best in­ter­est stan­dard said they be­lieve it would en­hance the in­dus­try’s im­age, help elim­i­nate shady ad­vi­sors and bring the in­dus­try’s stan­dards in line with the way clients should be treated any­way. For the most part, many ad­vi­sors be­lieve that it’s just the right thing to do.

“We al­ways need to be do­ing what’s in the best in­ter­est of clients. Be­ing judged against that stan­dard is fair,” says an ad­vi­sor on the Prairies with Mis­sis­sauga, Ont.-based In­vest­ment Plan­ning Coun­sel Inc. (IPC). “There are a lot of ad­vi­sors who are not do­ing that and just fo­cus on gen­er­at­ing the most rev­enue for them­selves and not what the client re­ally needs.”

“That we haven’t got there al­ready is shame­ful,” says an ad­vi­sor in Al­berta with Toronto-based PPI Ad­vi­sory. “If I were a client, I’d be irate if I un­der­stood the lack of i nsurance ad­vi­sors’ ac­count­abil­ity.”

Many of the ad­vi­sors who said they sup­port a reg­u­la­tory best in­ter­est stan­dard in­di­cated that they agree that it would be in the in­dus­try’s best in­ter­est.

“At the end of the day, any­thing we can do to for­mal­ize the fair treat­ment of clients will only help us in the long run,” says an ad­vi­sor in On­tario with Toronto-based Ray­mond James Ltd.

“Hope­fully, [a best in­ter­est stan­dard] would bring more in­tegrity to the in­dus­try,” adds an ad­vi­sor in On­tario with Mon­tre­al­based Peak Fi­nan­cial Group, “and weed out some of the id­iots who shouldn’t be in this in­dus­try.”

Of course, ad­vi­sor sup­port for a reg­u­la­tory best in­ter­est stan­dard is not unan­i­mous, al­though the no­tion that clients’ in­ter­ests should come first is widely ac­cepted. In­deed, sev­eral ad­vi­sors who said they don’t sup­port the CSA in­tro­duc­ing a best in­ter­est stan­dard in­di­cated that it’s not nec­es­sary be­cause ad­vi­sors should al­ready be putting clients first, and reg­u­lat­ing that would be re­dun­dant.

Some of the more thought­ful op­po­si­tion to a best in­ter­est stan­dard comes from ad­vi­sors who ex­pressed con­cerns about how to de­fine “best in­ter­est” and how it would be en­forced.

“I have grave reser­va­tions about this be­cause it’s not clear what [reg­u­la­tors] mean by ‘best in­ter­est’,” says an ad­vi­sor in On­tario with Lévis, Que.based Des­jardins Fi­nan­cial Se­cu­rity In­de­pen­dent Net­work. “I have no prob­lems with re­quir­ing high ethics, but [the pro­posal] is too vague and I don’t want to be in a con­stant bat­tle.”

Mean­while, a smaller mi­nor­ity of ad­vi­sors were op­posed outright to the idea of any added reg­u­la­tion. Says an ad­vi­sor in On­tario with Toronto-based TD Wealth Pri­vate In­vest­ment Ad­vice: “Trans­parency is a good thing, but [reg­u­la­tors] are go­ing too far. They’re paint­ing ev­ery ad­vi­sor in the coun­try as a bad ap­ple.”

Adds an ad­vi­sor in Bri­tish Co­lum­bia with Mon­treal-based Na­tional Bank Fi­nan­cial Ltd.: “Reg­u­la­tors need to get out of the way. We’re not all dirt­balls.”

Yet, some ad­vi­sors share th­ese neg­a­tive views of some in the in­dus­try and hope that the adop­tion of a reg­u­la­tory best in­ter­est stan­dard will help re­pair the in­dus­try’s im­age among clients.

“I want the in­dus­try to thrive. I don’t want to be as­so­ci­ated with ad­vi­sors who are thought of as used-car sales­men,” says an IPC ad­vi­sor in At­lantic Canada.

This over­all strong sup­port for a best in­ter­est stan­dard from the ad­vi­sor com­mu­nity cer­tainly stands in stark con­trast to the op­po­si­tion that the firms them­selves and in­dus­try lob­by­ists have ex­pressed. In­deed, ad­vi­sor sup­port seems to out­strip the CSA mem­bers’ en­thu­si­asm for the ini­tia­tive, given that the provin­cial se­cu­ri­ties com­mis­sions in On­tario and New Brunswick are the only ones pur­su­ing the con­cept.

Reg­u­la­tors in B.C. were against a reg­u­la­tory best in­ter­est stan­dard from the start and didn’t even par­tic­i­pate in the CSA’s con­sul­ta­tion. Yet, this neg­a­tive view is not shared by ad­vi­sors in B.C.: 71.5% of ad­vi­sors sur­veyed in that prov­ince said they sup­port the idea of a reg­u­la­tory best in­ter­est stan­dard, slightly be­low the na­tional aver­age.

“Would any­one sup­port a rule sug­gest­ing that we should not be work­ing in the clients’ best in­ter­est? Of course, we should be work­ing in the client’s best in­ter­est,” says an ad­vi­sor in B.C. at Van­cou­ver-based Od­lum Brown Ltd. “We’re try­ing to el­e­vate this in­dus­try to a pro­fes­sion — and yet, there’s too much fo­cus on sales­man­ship to the ex­clu­sion of the client’s best in­ter­est.”

“For­mal­iz­ing the fair treat­ment of clients will only help us”

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