Canadian regulators are in the process of evaluating whether or not to follow the UK and Australia and introduce legislation regulating how financial advisers are compensated.
Eight-in-10 (81%) consumers believe their financial adviser is compensated via commission from the mutual funds in which they invest; while 13% stated that they pay an annual fee, according to research from Advocis.
Conflict of interest
A third (30%) of consumers surveyed noted that the manner in which an adviser is paid could result in a potential conflict of interest.
An additional 16% advised that “they had never thought about it”.
Two-thirds of respondents consider themselves “somewhat informed” (33%) or “very informed” (29%) about the fees/compensation they pay their adviser.
Consumer preference
Moving forward, 53% of consumers would prefer to pay their adviser an ongoing 1% fixed commission of the value of their products.
A quarter (26%) would prefer to pay a percentage of assets under management (AUM) as set by their adviser.
Only 4% would prefer to pay an hourly fee of up to CN$350 (£173, €247, $263).
National review
The survey follows a June 2015 review on the impact of mutual fund compensation schemes on financial advice and outcomes. The report found that there was enough evidence to justify the development of new payment policies.
The Brondesbury Group, commissioned on behalf of the securities regulators of Canada’s provinces and territories, found that all forms of compensation affect advice and outcomes.
However, it found that “there was conclusive evidence that commission-based compensation creates problems and must be addressed”.
Trailer commission ban
The Brondesbury report is part of a broader initiative by the Canadian Securities Administrators (CSA) to determine whether mutual fund companies should ban the use of trailer commissions.
A decision on which is scheduled for early 2016.
