Monday, September 14, 2009

Canadian Financial Market Integrity

Each year the Chartered Financial Analyst (CFA) Institute polls its members on the state of ethics and integrity of markets. The report on the integrity of Canadian markets came out recently showing less confidence in the effectiveness of Canadian regulatory and investor protections than those of other countries.

One part of the poll had respondents rate the ethical behaviour of individual market participants. Here are the results from most ethical to least ethical:

Pension Fund Managers
Buy-Side Analysts
Mutual Fund Managers
Corporate Boards of Public Companies
Executive Management of Public Companies
Private Equity Managers
Financial Advisors to Private Individuals
Sell-Side Analysts
Hedge Fund Managers

Note that financial advisors didn’t fare very well in this survey. The comments section on a survey is often more interesting than the dry numbers. Here is what some experts had to say about financial advisors in Canada:

“Investment advice should be provided by investment professionals. Unfortunately, financial/investment advice is too often being given by salespeople with little experience/training.”

“Financial advisers to private individuals are too motivated by the commission they receive on certain products and recommend them to investors regardless of whether or not they meet their investment criteria.”

“The compensation system for financial professionals needs to be changed. All fees should, like a dentist’s or lawyer’s fees, be billed to the clients. This is especially true for financial advisers to private individuals who extract enormous fees for ‘distribution’ unseen to clients as they are bundled as part of mutual fund management fees.”

This last suggestion sounds quite sensible to me. The fees people pay should be visible. Many Canadians would be shocked to learn how much they pay their financial advisors.


  1. I remember seeing a previosu version of this survey and the comments seemed to be more or less the same. Not much is changing in the positive direction.

  2. There are too many CFAs in Canada.

    From what I am seeing, CFA Institute is trying to create a niche for CFAs to become financial advisors.

    I think CFAs are great financial advisors due to the broad knowledge required for the CFA curriculum.

  3. Henry: One thing that crossed my mind while reading the report was wondering what the CFA Institute's motive is for producing the report. Your assertion that CFAs want to get into the financial advisor business is plausible enough.