Arguments in favour of commissions ignore some key points

The arguments that Greg Pollock and Greg Archibald put forward on their letters to the editor on the topic of a potential ban on trailing commissions stretch the credibility of discourse.

For example, Pollock suggests that the experience of banning commissions in other jurisdictions has been a “failure” simply because the number of financial advisors has dropped. Is he suggesting the advisor population is the test? If we allowed an additional 20,000 high school dropouts to work as advisors, would he deem it to be a “success”?

Does Pollock have any reliable evidence that remaining advisors have raised fees — or that clients in other jurisdictions have been precluded from gaining access to advice? And why does he fail to mention that the technological disruption caused by robo-advisors will significantly both increase access to advice and decrease the cost of that advice?

Finally, why does Pollock fail to mention that evidence from other jurisdictions is equally clear that the remaining advisors are using more lower-cost products than before and passing those savings on to their clients?

Pollock then goes on to talk about that old chestnut — client choice. He fails to mention that the advisors who use embedded commission almost always fail to offer non-embedded products to their clients — even if those alternatives are better, cheaper or both. Instead, he channels Henry Ford and suggests investors can have any product they want — provided it is one that pays an embedded trailing commission.

Pollock then goes on to say that people should be allowed to make informed choices, and informed consent is a primary tenet of evidence-based advice, but does not demonstrate why any client would be opposed paying the same amount for advice and the same amount or less for investment products once they truly understood their options.

Then, Archibald calls Neil Gross’s original column “nothing but bluster,” when, in fact, Gross’s column is simply referencing rigorous research methodologies and their findings. Meanwhile, there’s ample evidence to challenge a number of his assertions — some companies pay higher trailing commissions while others pay none at all, and discount brokerages receive trailing commissions while offering no advice whatsoever.

In so doing, Archibald also mischaracterizes trailers as “fees” for providing financial advice when they are, in fact, commissions for certain products. He acknowledges that 5% of advisors are not “decent” and implies that the other 95% are doing the best for their clients — even as there are comparable, yet cheaper products available that pay no trailers.

Both Pollock and Archibald gloss over the pre-eminent concern in this discussion: that embedded compensation unequivocally causes bias. In essence, their preference for the status quo is akin to actively favouring biased advice that is often contrary to clients’ best interests.

John De Goey
Portfolio Manager
Burgeonvest Bick Securities Ltd.
Toronto