Wealth Professional: Veteran Advisor Speaks Out Against Regulator

Wealth Professional: Veteran Advisor Speaks Out Against Regulator

Recent discussions on the WP website revolving around the pros and cons of embedded compensation have gotten quite heated. A British Columbia advisor presents an interesting hypothesis. 

The Canadian Securities Administrators is currently studying embedded compensation and other sales charges. It’s possible regulators will ban trailer fees at some point in the future.

In an interview with WP, veteran financial advisor Harley Lockhart, past chair of Advocis and advisor at Quail Ridge Financial in B.C., said he’s baffled by the suggestion the industry should move to ban commissions, calling it neither credible or justifiable.

Lockhart believes any such prohibition on embedded commissions would cost consumers and is nothing more than a legacy move for OSC Chair Howard Wetston.

“It’s not a credible move and I think Howard is doing this because he wants to cement his legacy,” said Lockhart. “He wants to look good for the committee, he has a huge vested interest in making this happen and it’s going to cost consumers. It’s going to cost jobs. A significant number of advisors will be out of business because of this and it’s just a poor strategy in my mind.”

The U.K., South Africa and Australia took the investment industry by storm when they decided to ban commission-based selling and the idea that Canada would follow suit is drawing the ire of Lockhart and other advisors who feel they’d be unfairly targeted by the new regulations.

For those unfamiliar with the history of this very controversial subject, it began with a discussion published by the CSA in December 2012 that sought feedback from all the stakeholders in the industry about reforming compensation on the sale of mutual funds.

Lockhart argues the move could cost more than 25,000 jobs and the loss of advisors who won’t be ready or willing to make the switch to a fee-based service model.

“We’ll probably see a 25 per cent drop in the amount of advisors we have in Canada and there’s no reason for it,” said Lockhart. “What’s this going to do to the economy? All of those people being beat out of the business and I think that’s the attitude.”

Still, others such as advisor Jason Pereira thinks industry professionals will simply have to adapt to the changes and evolve with the times.

The senior financial consultant at the Bennett-March and IPC Investment Corp said the move is a necessary one because of the amount of abuse and mismanagement that can occur with commissions.

“I’ve heard a lot of stories from clients who come to find that advisors were making more than they expected and I think that’s driven some of them to a fee-based advisor,” said Pereira. “There are more of us in the market now and with all the different service models – robo advisors – there’s an opportunity create a new market.”

He added that there will be significant challenges but said the impact shouldn’t be too severe and commission-based advisors will need to step up their game to thrive in a fee-based system.