New research from the University of Calgary’s School of Public Policy finds that banning commissions will restrict access to financial advice for those who need it most.
The research notes banning third-party embedded compensation on the sale of financial products would constitute “a massive set-back for individual wealth accumulation and, ultimately, for the economy.”
It adds, “unbundling the cost of financial advice from that of financial products […] makes accurate comparisons of total cost of ownership between financial intermediaries inaccessible to individual investors. Comparability is a necessary condition for market efficiency.”
Further, “countries where financial advice has been unbundled from financial products, either as a result of market forces or regulatory fiat, have seen the opening of a large advice gap, and an increase in the total cost of the services for a large proportion of retail customers.”
Instead of banning commissions and creating an advice gap, a more effective solution to potential conflicts of interest is to enhance the proficiency and professionalism of advisors. For instance, there should be a standardization on the use of titles.
“Ensure titles are not misleading and reflect accurately the nature and scope of the services provided,” notes the research.
The paper also recommends a stronger emphasis on continuing education programs.
Greg Pollock, president and CEO of Advocis, says the association supports the research. “We encourage regulators and policymakers to consider this study when making a decision that could unintentionally prevent thousands of Canadians from accessing the professional advice they need to prepare for retirement.”
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Are commissions taxable on personal policies?