* Regulators mull ban on embedded fees, but change slow
* Industry argues for self-regulation, improved standards
* Supporters say fee-for-service more transparent
* Opponents argue fee-for-service will hurt poorest
By Andrea Hopkins
TORONTO, Oct 28 Canadian financial advisers have
watched regulators around the world ban embedded fees on popular
products like mutual funds, but the slow pace of change in
Canada has left them lobbying hard to preserve a profitable
While Canada's relatively high fees on financial products
were long overlooked when the economy boomed, low returns and
the advent of low-cost products like exchange-traded funds
(ETFs) have spurred calls for reform.
Advisers argue regulators are trying to reform the industry
by changing fee structures as well as duty of care and
disclosure rules even though Canada has not suffered the same
abuses and failures that prompted changes in the UK and
Australia. They say this will drive the cost of compliance so
high it will hurt advisers and investors alike.
"We don't have the same problems they had," said Ed Skwarek,
vice president of regulatory and public affairs at Advocis, the
Financial Advisors Association of Canada.
Advocis, the umbrella association for both independent
advisers and those working for Canada's big banks and insurers,
is pushing for change from within, saying a move to impose
standards on members is a better way to improve service than
EMBEDDED VS FEE-FOR-SERVICE
Industry studies show investor concern with both fees and
perceived conflict of interest in an industry where the most
common form of compensation among financial advisers is
This is particularly true at the lower end of the industry,
where retail investors are often sold mutual funds by
independent advisers who charge no other fee for the advice, but
can collect embedded fees long after purchase.
"I don't think our industry's reputation is where it needs
to be," Peter Intraligi, President of Invesco Canada, a unit of
Invesco Ltd, one of the world's largest asset management
firms, told advisers and investor advocates at an Advocis
symposium in Toronto on Monday.
Intraligi said mutual fund companies like his will not be
affected "in the long term" if Canadian provincial securities
regulators impose a ban on embedded fees on the products his
company sells, but he thinks investors should be given a choice.
More and more advisers are shifting to a fee-for-service
model, where fees are often based on a percentage of assets
invested or for time spent on a client, a system seen as more
But Intraligi said advisers and investors who prefer to have
fees embedded in the products they use should be able to do so.
At the bottom of the debate is the fine line between what is
good for the client and what is good for the adviser.
Many advisers fear consumers will resist financial advice
when they have to write two separate checks at the end of a
session - one for the product they wish to buy, and another for
the expertise of the adviser across the table.
CHANGE ALREADY UNDERWAY
Wade Baldwin, a certified financial planner at Baldwin and
Associates Financial Services in Calgary, said clients are not
going to be willing pay an adviser "C$3,000 or C$4,000" for
financial advice - though they may pay that much or more when
fees are embedded in the products they buy.
"People are just not going to do that, so people are not
going to have access to advice and the amount of advisers that
get recruited to the industry is just going to get smaller and
smaller and smaller, and so access to advice is going to
suffer," Baldwin told the Advocis symposium.
But investor advocate Marian Passmore believes even small
investors will pay if they think they are getting good advice in
return for their money, especially if a fiduciary duty or legal
obligation exists to act in their best interest.
"If you remove the third-party commission, advice will be
less conflicted, and therefore in the interest of the client,
and there won't be these biases whether conscious or not, that
lead to perverse outcomes," Passmore, associate director of the
Canadian Foundation for Advancement of Investor Rights, said in
Advocates of a "change from within" strategy hope to
pre-empt regulation with an industry-led approach including
higher educational and practice standards.
The industry may well be able to change before the country's
fractured regulatory system can catch up. Canada is the only
major developed country without a national securities regulator,
which means proposed changes churn through one provincial body
at a time.
Canada's federal government and two of its provinces agreed
last month to set up a common securities regulator, but it is
not expected to start operating until 2015.
But Passmore believes changes are inevitable.
"I'm optimistic that we will get there. Given the fact that
we have a multitude of jurisdictions, the process takes a bit
longer here, but I think the momentum will get us there."