Although the majority of Canadian investors who have financial advisors are unaware that they pay for certain financial planning services, a significant portion is still content with paying their advisors through product commissions, according to a survey presented by the Toronto-based Financial Advisors Association of Canada (a.k.a. Advocis) at its annual regulatory symposium in Toronto on Monday.
Less than one-third of those who participated in the study, entitled Investor insights on the financial advice industry, believe they have paid for retirement and investment planning even though more than 90% of respondents said they have received services in these areas.
However, that’s not to say Canadian investors are opposed to the commissions-style system of payment that is still dominant in the industry. More than half (53%) of survey participants stated they would prefer to pay for advice through an ongoing fixed commission of 1% of the value of the product. Approximately one-quarter (26%) of respondents would prefer to pay their advisor using a percentage of assets under management as set by their financial advisor and 4% would prefer to pay an hourly fee of between $150 and $350.
The research also indicates that Canadians are overwhelmingly happy with their financial advisors as 96% of survey participants stated the advice they receive is either “very valuable” or “somewhat valuable.” Three-quarters of respondents completely agree that their advisor is worth the money they pay and 17% state they somewhat agree with this statement.
The presentation of the survey’s results prefaced a heated panel discussion concerning the various industry perspectives on the transparency of fees and the possibility of the introduction of a fiduciary duty for advisors.
If some argue that advisors should be like doctors and subject to a fiduciary duty, then consider that transparency of fees is not an automatic requisite of that duty, suggested Curtis Findlay, a panellist and president of Compass Financial Services Planning Ltd. in Canmore, Alta.
“I am referred to a [medical] specialist and I don’t know how much they are paid,” said Findlay. “I have never questioned the professionalism of the doctor.”
However, Susan Eng, vice president for advocacy at Toronto-based Canadian Association of Retired Persons (CARP), reminded the audience that fiduciary duty is important for investor protection as it will allow clients who feel they have received bad advice to take advisors to court and have a process to seek redress for lost investments.
Although some clients may find the financial advice they receive to be valuable, this does not necessarily indicate that they’re receiving proper advice, said Ursula Menke, another panellist and chairwoman of the Ontario Securities Commission’s (OSC) Investor Advisory Panel.
Menke used an example from the OSC’s mystery shopper project conducted in 2014. Shoppers felt they had received good advice, but a significant number of those conversations between shoppers and advisors resulted in incomplete “know-your-client” forms, she said.
The online survey was conducted by Waterloo, Ont.-based research firm PMG Intelligence between January and March 2015, using the responses of 1,739 Canadian investors with a financial advisor who is a member of Advocis. This represents a margin of error of 2.35% with 95% confidence.