Friday, November 9, 2012

Video of a Debate about Financial Advice in Canada

The Business News Network ran an interesting debate about whether Canada should expect a fiduciary standard from financial advisors. 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 decisions 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.


  1. Michael, thanks for posting this.

    There is another gap as well - discount brokerage platforms getting the trailing commission when a client invests in an A class mutual fund. RBC DI went one step further this year by banning non three mutual fund firms that do not pay trailers. See the Morningstar piece on this.

  2. My problem is with the choice of the word "advisor". I'd have no problems with a "financial salesperson" having no fiduciary duty, an "advisor" is someone whose job is to give advice, and it's unethical for such a person to claim this is what they do if they actually operate under the conflict of interest that exists when they accept sales commissions and decline fiduciary duty to those they are advising.

  3. @David: I agree that this smells. Perhaps it makes sense to extend my suggested rule. I suggested that if you recommend specific investments to a client and get compensated for it, the you must meet the fiduciary standard. Maybe those who collect trailers should also meet a fiduciary standard.

    @Patrick: Unfortunately, even we force people to take "financial salesperson" as an offocial title, they will still wear a nice suit and present themselves in a way that make prospective clients think that they are acting in their interests.

  4. Would it make any difference to your interpretation of the comments - or of a "financial advisor" claiming to be a member of "Advocis – the Financial Advisors Association of Canada", if it was represented as "Advocis, formerly the Life Underwriters Association of Canada"?

  5. @Glenn: It wouldn't make any differende to me. I try to judge the arguments people make on their merits. Even the most unbiased person may make some silly arguments, and even the most biased person may make some sensible arguments. I think the best way forward is to filter out bad arguments and focus on the good ones, regardless of the source.