RE: “The CSA must act on critical reforms:”(Ermanno Pascutto, Inside Track, March 2,www.investmentexecutive.com)

There are comments in this article that are simply unacceptable and thoughtless. As a publication that writes for the investment professional in Canada, I would have thought you would make more of an effort to provide a properly researched and better balanced approach. Here are my comments in response:

Pascutto (P): “As well, the high cost of mutual fund fees in Canada has been widely acknowledged for many years…”

Archibald (A): There have been a number of articles published showing the cost of mutual fund investing in Canada is very close to that in the U.S.

The difference is we bundle our advisor fees with the mutual fund fees; whereas in the U.S., they unbundle and charge separately. This is almost never acknowledged in articles like this.

In addition, the U.K. model is possibly demonstrating a tendency to leave advisors looking for clients with large enough investments to justify the added expense of billing and collecting fees. This is possibly going to leave many smaller investors without access to advice, which is sorely needed.

P: “Investment costs are a zero-sum game…”

A: What the heck does this mean? Are we supposed to accept that clients should have access to both investment vehicles to help them grow their wealth and to investment professionals to help them design a plan to do that, all at no cost?

We have a whole series of agencies to impose rules on our industry at various levels. Each one of these has a different outlook and a different set of rules. And each one of them changes the rules on a regular basis, so the professionals in the industry often have a difficult time even knowing what the rules are. The solution this article seems to propose is “more rules.” What a novel idea!

P: “In a recent speech, Bill Rice, the [Canadian Securities Administrators] chairman, suggested that ‘we have problems because, in too many cases, the existing standards, on the part of the investor, are often not understood and, on the part of the salesperson, are often not abided by.’ Although this is correct, it’s only the tip of the iceberg in consumer protection in the sale of investment products.”

A: The industry is often not abiding by the rules? I would challenge that as being totally ridiculous. There are rule-breakers in any industry, including the law and accounting, and the other “professions.” This will always be the case.

P: “The problem is not just the rogue advisor who does not comply with the existing rules – although that can, and does, occur too frequently…”

A: Give credit where credit is due: thousands of advisors across the country help their clients generate wealth and plan their financial futures.

Greg Archibald
Investment Planner and Financial Advisor
Architype Financial
Vancouver

 

How can one argue with such “apple pie” statements as: “We must protect the interests of the ordinary investor”?

After that, [Pascutto’s] arguments seem less clear. Ever since I began with – and then left – Investors Group Inc. in 1994, I have heard (but not so much lately) the exhortation to begin putting aside $100 per month. This, if done from ages 20 to 30, with a healthy rate of return, can work wonders, we were told.

If we eliminate trailer fees from mutual funds, how and when would these people be charged? Who would be the financial advisors who served these investors diligently?

I see that [CBC’s] Marketplace is uncovering the incompetence of financial advisors with a [hypothetical] secret investor who has, we are told, an average amount of $50,000 to invest and a debt of $100,000. (Mortgage, student loan, credit card? We were not told.)

Currently, this investor could be charged a 2% fee (instead of trailer fees) and the result (at 6%, less the fee) would be about $114,500 after 25 years.

Please, let us have someone in these “investor protection” groups clearly state how young people (and even older people without a $50,000 nest egg) can be encouraged to save, who will advise them and how they will be charged.

David McDonald, CFP
Investia Financial Services Inc.
Edmonton

 

RE: “Raising the professional bar?” (Keith Costello, Inside Track, Feb. 10,www.investmentexecutive.com)

In response to Keith Costello’s comments regarding Advocis’s Professions Model, Advocis is proposing a system of professional governance that is easy to implement and delivers vastly enhanced consumer protection. The efficiencies gained through streamlining what is now a fragmented regulatory system would bring down the overall cost of regulation.

Costello seems to believe that a better solution is to get the existing product regulators, across all sectors and jurisdictions, to amalgamate and harmonize their requirements. Even if, by some miracle, that came to pass, the focus would still be on the sale and distribution of product. That’s not going to address the real issues with respect to the client/advisor relationship.

What is needed is oversight of the practice of financial advice. The most effective and cost-efficient way to achieve this is for government to require anyone working in this capacity to belong to an accredited association. If you’re not a member, you don’t practise. And if you violate the law, there are stiff penalties.

Associations would have to have proficiency standards, a code of conduct, education requirements, and a complaints and disciplinary process in order to be accredited by government.

Contrary to Costello’s assertions, this approach would prevent the unqualified from practising and put the unscrupulous out of business. It would do so without adding any new costs to the system, as professional associations with these requirements, like Advocis, already exist.

Finally, Costello says “current deliberations” seem pointed in the direction of regulating financial planners as a profession. What about advisors? Does he want one group inside and another group outside the regulatory tent?

At Advocis, we maintain that all 90,000 financial advisors in Canada, including the 18,000 individuals with a certified financial planner designation, should be governed to ensure that consumers are protected and industrywide standards prevail. Here’s to raising the bar – for everyone.

Greg Pollock
President and CEO
Advocis,
The Financial Advisors Association of Canada
Toronto

 

RE: “New year, new regulatory resolutions?” (IE editorial, Mid-January 2014)

Two questions: 1. who ultimately bears the cost of any regulatory burden in the investment industry? 2. Who derives the benefit of extensive consultations before any new regulation is put in place?

The answer to both of those questions is the same: one way or another, the investment industry’s clients will pay the additional costs necessitated by new regulations. And they will benefit from effective regulation – and suffer the consequences of poorly thought-out regulations.

That is why it is surprising that [this] recent editorial counsels the financial industry to stop whining about the regulatory burden and recommends that regulators abandon extensive consultations on proposed rules that “ultimately go nowhere and consume countless industry and regulatory resources.”

These statements reveal a lack of understanding of the regulatory process. A regulatory burden imposed on the investment industry is a cost. Like any other cost of doing business, it will be passed on to clients in the form of higher fees and charges or truncated and reduced financial services.

A good example: many smaller dealers are raising the minimum threshold amount of investible funds necessary to open a cash or registered account, denying many small clients the opportunity to benefit from customized advice and products, and shunting them to the mass marketplace of commoditized mutual funds and managed funds.

That’s a burden on investors who can least afford it, making it clear why the regulatory burden should not be ignored and written off. Rather, regulation must be properly measured and justified by the regulators, in terms of the benefits to protecting investors and improving the efficiency of financial markets.

Second, consultations with [the financial services sector] should be strengthened, not disbanded, to guide regulators in designing cost-efficient rules and ensure that negative consequences from the rules are avoided. Provincial securities commissions and the independent regulatory bodies IIROC and the MFDA undertake extensive consultations on proposed rules for a good reason.

Far from going nowhere, as suggested, these consultations lead to better rule-making, as the industry weighs in with suggestions for more effective rules.

The objective is not about piling on more rules to protect the investing public, as several high-profile investor advocates suggest, but designing more cost-effective rules that meet defined outcomes and provide flexibility for better client service.

Rather than abolishing the consultation process, efforts could be made to strengthen the industry/regulator dialogue to help close the perceived regulatory gap. Other issues could include estimates of compliance costs and providing an assessment of unintended consequences.

Finally, the consequences of new rules are difficult to predict at the time rules are implemented, so regulators should engage in “pilot tests” of the proposed rules, similar to the [U.S.] practice, or formal post-implementation review with the [pertinent] industry. The real regulatory burden arises when compliance costs from new rules increase without clear evidence of benefit to investors and the financial markets.

Getting the balance right isn’t easy. But by engaging with the industry, the goal is certainly possible.

Ian Russell
President and CEO
Investment Industry Association of Canada
Toronto

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