Canada Is Not Alone in Demanding Investing Transparency: Comparable CRM Global Regulations

On July 15^th, 2016, CRM Phase 2 will come into effect. Investment advisors and firms will be required to disclose annual reports of charges, compensation and performance. This is a positive change for investors, who are too often left in the dark by their investment advisors.

To learn more about CRM Phase 2, see our previous blogs and videos:

• The History and Background of CRM Phase 2
• What Is the Impact of CRM Phase 2?

Financial Advisor Regulations around the World

Two major financial hubs have already executed separate initiatives against commission-based financial advisors. Both the United Kingdom and Australia have enforced significant reform that has changed the landscape of how financial services are provided in their respective countries.

On January 1^st, 2013 the United Kingdom banned commission-based selling, internationally known as “the death of a salesman”, losing over 25% of their financial advisor network.

On July 1^st, 2012, the Australian regulators tackled the conflicts of interest that also threatened the quality of financial advice being provided to their citizens.

The two regulations had unique effects within their financial system, but accomplished the common goals of increasing transparency and disclosure.

Financial Advisor Reform in the United Kingdom

At the start of the 2013 calendar year, the United Kingdom endured the biggest shake-up of its investment industry for decades: financial advisors had to charge upfront fees to their customers, rather than receive commission from companies supplying the financial products.

The move by the Financial Services Authority (FSA) under its retail distribution review (RDR) was focused on increased transparency and reducing the possibility of mis-selling to investors. Investors were finally able to see the cost of financial advice, which previously was thought to have been free, since all charges were embedded and indirectly provided to the financial advisor.

Senior legal counsel for the Ontario Securities Commission for the Client Relationship Model (CRM) Phase 2 initiative provided the following insight into the UK regulation:

“Unfortunately, the United Kingdom jumped too quickly. Although I agree that a higher standard has been created, given that top brokers have needed to upgrade their educational requirements and pass compulsory examinations, the country did not provide the investors the right to decide.

More specifically, the Client Relationship Model will provide disclosures of all fees. Therefore, it will lead to a natural progression of how the industry provides financial advice, instead of just forcing a specific motion.”

This rings true given that as much as 80% of United Kingdom consumers will no longer be able to access financial advice given the new regulation; leaving the country debating whether the regulators did more harm than good.

Financial Advisor Reform in Australia

During the winter of 2012, Australia was the first to execute their assault on commission-based advice.

Regulators became more focused on bank dominance than the typical financial advisor. In Australia, there are prominent banks that dominate the financial services industry. Regulators found that these banks enjoyed all the benefits of the value chain for financial products. More specifically, they take commissions for creating the financial products for sale and then lead in distributing them to the public for additional compensation. The clear dominance within the industry caused regulators to force banks to divest to provide more cost competition for the investor.

As a result, Australians have also lost access to financial advice.  The concept of the do-it-yourself investor is growing exponentially down under.

CRM Phase 2 Reform in Canada

CRM2 requires advisors to disclose fees (direct and indirect). In so doing, clients will have a better understanding of what they are paying for and whether they are getting an acceptable level of value.

This will not cause investors to lose access to financial advice, as has been the result of reform in the UK and Australia. Instead, it will help investors choose financial advisors more wisely. It will encourage client migration within the financial services industry, and force advisors to structure their fees fairly.

>> Transparency and objectivity are founding principles of HighView’s investment advice and wealth stewardship approach. If you want to see if we’re the right team for your family or foundation, schedule a complimentary discovery session with us.

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• Get the Truth about Costs: Top 5 Questions for Investors to Ask Investment Advisors
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• Debunking the Investment Industry: Relative Benchmarking