The Business News Network ran an interesting debate about whether Canada should expect a fiduciary standard from financial advisors (link to video here). The combatants were tireless advocate for Canadian investors Ken Kivenko (president of Kenmar Associates) and Greg Pollock (president and CEO of Advocis – the Financial Advisors Association of Canada).
A fiduciary standard means making decision based solely on what’s best for the client. Currently in Canada, most financial advisors must meet a much lower standard that permits them to sell financial products that are suitable for the client from a risk point of view even if the product is very expensive and pays the advisor handsomely. Many investors are surprised to learn that their financial advisors don’t have a fiduciary duty.
My favourite part of the debate was when Pollock said “we’ve been the envy of countries around the world in terms of the way our financial services are regulated.” This attempt to take the good feelings about the strength of Canadian banks and attach them to our financial services industry didn’t go unnoticed. Kivenko correctly pointed out that while our banking system is envied for its strength, this envy doesn’t carry over to Canadian investors who face the highest mutual fund costs in the world.
Pollock made an interesting point about how it makes no sense for order-takers like discount brokerages to take on a fiduciary duty and refuse to sell investments to their clients. However, I don’t think investors expect a fiduciary duty when they choose investments themselves and execute trades online. It’s when an investor receives advice from a financial advisor that it makes sense to expect a fiduciary standard.
The gap that exists right now comes when a salesperson sells financial products to make commissions with little regard for the client’s interests, but the client doesn’t realize the nature of this relationship. It is in these situations that we need to impose a fiduciary standard. A strict order-taker like a discount brokerage is one thing, but as soon as a salesperson suggests a specific investment, clients need a fiduciary standard.