Pub­lic pro­tec­tion de­mands re­form of fi­nan­cial sec­tor

The Woolwich Observer - - COMMENT -

BE­ING CON­STANTLY BOM­BARDED WITH sales pitches and life­style ad­ver­tis­ing from the fi­nan­cial in­dus­try, Cana­di­ans would be well served by stronger reg­u­la­tion of the sec­tor.

A spate of re­cent sto­ries about am­bigu­ous claims and de­cep­tive prac­tices make it clear that the over­whelm­ing ma­jor­ity of what is called fi­nan­cial ad­vice is noth­ing more than a sales job. Very few peo­ple of­fer­ing up a va­ri­ety of prod­ucts have any fidu­ciary duty to their clients. In­stead, most are sim­ply sell­ing in­vest­ment ve­hi­cles that pay the largest com­mis­sions to them­selves and their em­ploy­ers, often the coun­try’s largest banks.

Take, for in­stance, the use of “fi­nan­cial ad­viser” in­stead of “fi­nan­cial ad­vi­sor.” The former, with an “e,” has a le­gal re­quire­ment of some fi­nan­cial duty to the clients. The lat­ter with an “o”, much more com­mon, is a workaround that comes with­out any obligation. Or re­quire­ment to dis­close.

This is not to say that ev­ery­one in the in­dus­try is out to de­ceive, but ethics are a big is­sue. Even with all the scru­tiny – and multi-bil­lion-dol­lar losses – that came with the melt­down of 2008, al­most en­tirely caused by un­eth­i­cal con­duct in the in­dus­try, has failed to pro­tect the pub­lic. That’s how, al­most a decade later, we’re still hear­ing in­di­vid­ual hor­ror sto­ries that in turn beget more of the same. And still more.

It’s into this cli­mate that a group called the Cana­dian Foun­da­tion for Ad­vance­ment in In­vestor Rights (FAIR Canada) last week called for re­forms to pre­vent those sell­ing in­vest­ment ve­hi­cles such as mu­tual funds (them­selves an is­sue given the propen­sity of fees to erode large chunks of clients’ money) act­ing in their own in­ter­ests over those of their cus­tomers.

It wants re­forms that will re­quire “fi­nan­cial ad­vi­sors” and their firms to have a statu­tory duty to act in their client’s best in­ter­ests. The group is call­ing on gov­ern­ment reg­u­la­tors to move for­ward quickly with im­ple­ment­ing a best in­ter­est stan­dard that pro­hibits con­flicted re­mu­ner­a­tion and re­quires the avoid­ance of con­flicts of in­ter­est.

“Ti­tles should be reg­u­lated so it is clear to con­sumers whether they are get­ting ad­vice in their best in­ter­est or not”, says Ermanno Pas­cutto, FAIR Canada’s board chair. “Those who do not pro­vide ad­vice in the con­sumer’s best in­ter­est should be called a “sales­per­son” and not be held out as a ‘fi­nan­cial ad­vi­sor.’”

The pub­lic has ev­ery right to be sus­pi­cious of the fi­nan­cial ser­vices in­dus­try, above and be­yond our nat­u­ral dis­trust of banks and in­sur­ance com­pa­nies and their fees. A 2015 study of the sec­tor in the U.S. and the UK – The Street, The Bull and The Cri­sis – found post-2008 at­ti­tudes to­wards ethics within the in­dus­try to be head­ing in the wrong di­rec­tion. It notes that un­eth­i­cal be­hav­iour per­sists, with a cul­ture of in­tegrity fail­ing to take hold – not sur­pris­ing given that bailouts were largely aimed at those re­spon­si­ble, many of whom pock­eted bonuses as tax­pay­ers – those pay­ing the bills – lost their homes and jobs.

With­out an ag­gres­sive plan to stamp out mis­con­duct, we are sim­ply sit­ting and wait­ing for an­other fi­nan­cial dis­as­ter to strike, the study de­ter­mined.

In line with pen­sion re­form, this is an is­sue for many of us who don’t have a pen­sion – that’s the case for the ma­jor­ity of work­ers out­side of gov­ern­ment ranks – and rely on per­sonal sav­ings and in­vest­ments to fund their re­tire­ment. We sim­ply can’t af­ford the sta­tus quo in an in­vest­ment in­dus­try that makes bil­lions from de­lib­er­ately con­fus­ing its clients and steer­ing them to­ward ex­pen­sive prod­ucts that shrink re­tire­ment ac­counts over time.

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