{"id":161,"date":"2015-03-05T15:56:34","date_gmt":"2015-03-05T23:56:34","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=161"},"modified":"2015-03-05T15:56:34","modified_gmt":"2015-03-05T23:56:34","slug":"is-the-financial-advice-industry-in-canada-structured-to-help-clients","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/is-the-financial-advice-industry-in-canada-structured-to-help-clients\/","title":{"rendered":"Is the financial advice industry in Canada structured to help clients?"},"content":{"rendered":"

Structural issues in the financial advice industry in Canada may be responsible for certain adverse outcomes for clients but the path\u00a0to progress presents a bit of a conundrum.<\/strong><\/p>\n

At the end of February the Ombudsman for Banking Services and Investments (OBSI) released its 2014 Annual Report<\/a> – we paged through to the section where the OBSI\u00a0publicizes the names of firms who refused to compensate investors based on complaints and OBSI compensation recommendations in 2014. \u00a0 To those\u00a0that\u00a0label\u00a0this “name and shame” approach\u00a0a harsh campaign, the report highlights\u00a0that it is not the OBSI’s choice, they are in fact required to publicize these cases under the terms\u00a0in\u00a0which the OBSI was created. \u00a0 Furthermore, it’s arguable that it’s\u00a0helpful to highlight\u00a0these cases, both to raise the awareness of the general public and to act as warning for other industry participants. \u00a0The cases where firms refused to compensate investors represents\u00a0a very small minority of complaint cases – in fact 99% of the cases brought before the OBSI\u00a0have been resolved. \u00a0In 2014 there were 345 investment case files opened and 241 cases that ended with monetary compensation for investors.<\/p>\n

The data is not sufficient to\u00a0conclude the investment industry in Canada is crooked but reading the case studies in the OBSI report does make you wonder what might\u00a0improve the situation other than using\u00a0deterrent methods like “name and shame”. \u00a0Is it possible that there is something structural in the financial advice industry that is preventing more clients\u00a0from having an optimal service experience? \u00a0Can it be improved?<\/p>\n

Structural issue?<\/strong><\/p>\n

A person or family’s financial situation is very personal, often something they don’t even discuss with their extended family or close friends. \u00a0To invite\u00a0someone else, an advisor, into the situation requires not only someone trusted\u00a0but sufficiently competent to address a number of different areas. \u00a0To be truly beneficial<\/em>\u00a0financial advisors must spend much more time and effort understanding their clients’ financial and life planning needs than required by the typical know your client (KYC) obligations. \u00a0While investments are only one component of a comprehensive\u00a0financial plan, the investment recommendations\u00a0must be informed by many different aspects of a client’s financial situation.<\/p>\n

The industry, in its current structure, is not\u00a0truly beneficial<\/em> for clients. \u00a0On one side\u00a0there are\u00a0independent financial planners or coaches who help individuals get organized financially, often charging an hourly or project fee to help review and improve areas such as cash flow and debt management, insurance needs, estate planning, retirement savings and others. \u00a0While they provide valuable advice and are likely very transparent about how they are compensated, they are rarely<\/em> registered by a regulatory agency such as the provincial securities commissions to give investment advice or implement an investment plan. \u00a0On the other hand, the advisors and organizations that are<\/em> registered to give investment advice are commonly compensated by selling product\u00a0and have not<\/em> built into their business models the time and resources sufficient to truly understand a client’s financial planning and therefore investment needs. \u00a0This structural\u00a0separation\u00a0between planning and investment advice experienced by many clients\u00a0may be the source of some dissatisfaction and resultant adverse outcomes.<\/p>\n

A conundrum?<\/strong><\/p>\n

We discovered the above dynamic partly through reading and partly through our own research and experience in advance of setting up Chalten Fee-Only Advisors<\/a>. \u00a0Why aren’t more financial planners registered to give investment advice? \u00a0From our many conversations with financial planners\u00a0there are two common answers. \u00a0The first is not surprising – that’s the way they have decided to run their business. \u00a0They like what they do, they help people and are sufficiently busy and compensated to keep it that way. \u00a0The other answer is that the registration and ongoing compliance requirements are just “too onerous” or “costly”. \u00a0 Having gone through the registration process and also having worked and experienced\u00a0securities regulators in other jurisdictions including the UK and USA we’d say “very thorough” or “rigorous” are\u00a0more apt descriptions. \u00a0Whether perceived or real, any\u00a0stringency\u00a0to the registration and compliance requirements can’t be surprising given the complaint cases\u00a0highlighted by the OBSI, the investigations conducted by Securities Commissions, and the anecdotal\u00a0evidence known to many investment professionals and clients. \u00a0So does this present a conundrum? What can be done?<\/p>\n

In a previous post I discussed whether innovation or regulation will drive change for investors<\/a> in Canada and with respect to this issue\u00a0I’m not sure forcing change through regulation or\u00a0banning certain practices helps either. \u00a0On the other hand, increased communication between industry participants and customers and increased transparency will always facilitate progress.<\/p>\n","protected":false},"excerpt":{"rendered":"

Structural issues in the financial advice industry in Canada may be responsible for certain adverse outcomes for clients but the path\u00a0to progress presents a bit of a conundrum. At the end of February the Ombudsman for Banking Services and Investments (OBSI) released its 2014 Annual Report – we paged through to the section where the […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,7,14],"tags":[],"class_list":["post-161","post","type-post","status-publish","format-standard","hentry","category-all-posts","category-graham-bodel-posts","category-investment-industry-issues"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/161","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=161"}],"version-history":[{"count":1,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/161\/revisions"}],"predecessor-version":[{"id":162,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/161\/revisions\/162"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=161"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=161"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=161"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}