Freedom to choose products remains a top priority

The category with the second-highest collective importance average for 2024 was also product-related. “Quality of product shelf,” which considers the rules and restrictions that firms and banks place on advisors’ product access, was rated 9.4 collectively (similar to its rating of 9.3 a year ago).

Advisors generally want to avoid conflicts of interest when meeting clients’ needs. “Restricting advisor bias is crucial to the future of our industry, so we should have freedom to do what is right for clients,” said a brokerage advisor in Ontario.

According to a brokerage advisor in British Columbia, firms understand this: “They don’t interfere … They want you to go build your practice.”

Instead of pushing clients into specific products, the focus is more on “balancing out to place clients’ needs first,” said another brokerage advisor in Ontario.

Most dealer advisors said they felt no pressure to push products, with one Ontario advisor surveyed for the Dealers’ Report Card saying, “There’s no hint or requirement that you have to do certain things,” such as selling in-house funds.

For 2024, brokerage advisors were most satisfied by their firms’ efforts in each of the product freedom and quality-of-shelf categories, rating them 9.7 and 9.2 for performance, respectively (unchanged from 2023). Dealer advisors rated their firms 9.3 and 9.2 in those two categories, respectively, compared with 9.4 and 8.9 a year ago.

Firms that had continually evolved the tools and processes used to document investment choices for clients received the highest ratings from advisors. One advisor in Alberta with a bank-owned brokerage said their firm provided a tool that allows advisors to weigh clients’ risk tolerances and objectives from a know-your-client (KYC) perspective: “They give us the right products and tell us what is not suitable for clients.”

Some advisors with firms that did not provide useful tools expressed frustration. For example, one dealer advisor in Ontario felt their firm’s tools had “hindered and restricted our ability to select investments for clients.” They wished for a greater range of risk tolerances to be presented in their investment management dashboard.

Numerous other advisors blamed industry regulators, saying the overall environment has become difficult to navigate for firms, and thus advisors. “[Product freedom] used to be a 10,” said a separate dealer advisor in Ontario. But now, under enhanced KYC rules, firms must be “stickier” with their policies and what they allow clients to be invested in.

“Our compliance department isn’t necessarily at fault for that,” this advisor said.

The group that rated their organizations lowest for the two product categories was retail bank advisors, who gave both categories a performance rating of 8.4 (down from 8.6 for freedom and 8.7 for shelf quality a year ago). These advisors were most restricted due to the continued policy across the Big Six banks of allowing retail advisors to sell only in-house products — meaning their freedom had stringent parameters.

As one retail bank advisor in Ontario said, “We are free to work with the tools we are offered. We [just] can’t go outside the box.” (Read investmentexecutive.com/rcbproduct2024.)

Advisors at brokerage firms and dealer firms weren’t as forgiving on this front. One brokerage advisor in Alberta said, “There are no restrictions at all [at my current firm] … I left [my former firm] because they limited their shelf.” This same advisor noted they were honest with their former firm’s senior executives about the need for greater choice, based on what was best for clients.

A fair pay grid

In the “compensation structure” category, advisors across all Report Cards agreed on the importance of a clear and fair pay grid. The category was rated 9.3 for importance by each of the groups individually and, therefore, its collective importance average also was 9.3. That was the third-highest collective importance average for 2024.

For performance, however, each of the advisor groups gave a different average rating. The pay category’s collective performance average was 8.5, similar to 8.4 in 2023.

Advisors have cared about the transparency and competitiveness of their firm’s pay structure because these factors help them make business decisions. When a grid is generous, said a brokerage advisor in the Prairies, “you can decide how you do your own business … [with money] put aside for office and associate costs. You don’t have to worry.”

Brokerage advisors gave the compensation category the highest performance rating out of all three groups — 8.9 compared with 8.8 in 2023. A grid that is fair and easy to understand “drives proper business behaviour” by advisors, said a brokerage advisor in Alberta. Then, there’s no temptation to “churn” client accounts, that advisor added, a practice that’s unethical.

Dealer advisors gave their firms’ compensation structures a performance rating of 8.5 on average, down from 8.6 in 2023. Among this group, there were more complaints about fees and grid inconsistency. “I wish they would stop charging us fees upon fees,” said a dealer advisor in the Prairies, in reference to business expenses and account fees that flow through to clients.

Some dealer advisors asked for better guidance when their pay grids evolve. There should be “more clarity on the expenses,” said a dealer advisor in Ontario, who added that compensation details weren’t “available as readily as [they] should be. Where is this information and how can it be retrieved?”

Retail bank advisors, who are paid predominantly through salaries and bonuses, gave their institutions the lowest performance rating in the compensation category out of all three channels — 8.0, up from 7.8 a year ago.

These retail bank advisors would prefer a more stable grid. One advisor in B.C. said, “The structure changes almost every year. It’s not too consistent.”

Confusion on the part of the advisor can have a negative impact on clients, said a retail bank advisor in Alberta, who found their pay to be inconsistent. If you have to adjust your business every year, it’s “hard to find continuity [and there’s] lack of direction,” this advisor added. “From a client standpoint, [that’s] not aligned to their best interests.”

Salary increases also were important. “For the responsibilities we have, [pay] could be better,” said a retail bank advisor in Quebec. “It has improved, but [pay] should still be increased given the work we do.”

This article appears in the November issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.