Canadian financial advisors are facing the prospect of multiple regulatory changes as the industry evolves, and industry executives are urging regulators to carefully consider the consequences before implementing any changes.
At a symposium hosted by Advocis, the Financial Advisors Association of Canada, in Toronto on Wednesday, Dean Owen, chairman of the board of directors of Advocis, said advisors are facing a variety of “game-changing” issues. They include the shift towards the professionalism of advice, regulatory convergence, changing compensation models, and the continuing debate around fiduciary standards, among others.
“This past year has been simply extraordinary in regards to the issues that have come down the pipe, compared to previous years,” Owen said.
As regulators address these kinds of issues, Advocis is actively offering input to regulators and policymakers. The association wants to ensure that any new rules are designed to address specific problems, and are well thought out.
“Action should only be taken when the consequences are identified,” Owen said.
He suggested that the decisions by regulators in Britain and Australia to ban embedded commissions in financial products may have been an overreaction on the part of those regulators, and could have unintended consequences. The moves were partly in response to major fraud cases and the mis-selling of products to investors that had occurred in those countries.
“I question whether the regulatory responses in these two jurisdictions are reasonable and rational reactions to the identified problems,” he said. “Or, was it simply a matter that regulators overreacted to a situation due to external pressures?”
The consequences of these regulatory changes are beginning to be felt. Owen estimated that the number of financial advisors in Britain has fallen to approximately 50,000 from 150,000 in the past 10 years, possibly due to the compensation changes, drastically limiting the availability of financial advice to consumers. Similarly, the number of advisors in Australia has fallen by about 70%, Owen said.
The financial services industry in Canada is different from those in other parts of the world, Owen said. While it’s important for Canadian regulators to monitor the changes and events in other jurisdictions, he said they should avoid implementing new rules simply because other jurisdictions are doing so.
For instance, while some countries are considering imposing a statute-based fiduciary standard against financial advisors, Owen noted that Canadian advisors are already subject to a common law, principle-based fiduciary standard.
“Why, then, would we use scarce regulatory resources to impose a statute-based standard when fiduciary duties already apply to financial advisors in Canada?” he said.
Terry Zive, president and CEO of Zive Financial, agreed that all advisors should be actively participating in these kinds of debates, since the outcome of these discussions will shape the future of the industry. Unless advisors themselves step up to the plate, he said the future of the business will be determined by others who don’t have the knowledge, experience and understanding necessary to establish rules that benefit consumers, advisors, product manufacturers and other industry players.
“The greatest risk that we have as financial advisors into the future in these times of change is to do nothing, and to have our futures dictated to us by those who lack our expertise and understanding,” he said. “The greatest opportunity lies in taking the lead. Although potentially fraught with danger, but in taking the lead we can define our own futures.”
He called for financial advisors to take the lead by pushing for the business of financial advice to evolve into a profession with a common set of standards.