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If Canada completely bans sales commissions like the U.K. and Australia, advisors and their clients will suffer.

This was the general consensus at an Advocis and PwC event held yesterday in Toronto.

In Australia, the Future of Financial Advice (FOFA) reforms banned embedded commissions, established a best interests legal duty and expanded requirements regarding fee disclosure, says Advocis. These changes increased the costs to serve investors by more than 30%, and compliance costs for advisors have amounted to AUD$700 million so far, finds a PwC survey of small- and medium-sized (SMB) advisory firms.

Read: Will the commission debate affect advisor business valuations?

And in the U.K., the number of advisors dropped 25% due to similar regulatory reforms.

The investors that will have the most difficulty affording fee-for-service arrangements are those in the low- to middle-income range, finds the survey. And those clients, who typically have assets under $100,000, make up 80% of the investor market.

Read: Commission ban could be bad move, says CFA

Meanwhile, 12% are those with assets between $100,000 and $500,000; 4% have between $500,000 and $1 million; and 4% have $1 million plus, notes the survey.

“We need a system that serves investors at all income levels,” says Greg Pollock, president and CEO of Advocis. “Given Canadians’ concerns around cost of living and retirement readiness, it’s critical that more people are able to seek professional financial advice.”

Read: Compliance roundup – June 2014

Also, there could be an economic impact if Canadian advisors follow the footsteps of those in the U.K. The SMB sector employs 182,000 people in Canada, and contributes $19 billion to the GDP (or 1.1%). This is greater than the auto (0.9% of GDP), aerospace (0.6%) or pharmaceuticals (0.3%) industries.

The experts provided an alternative to simply banning commissions.

“If we can get to a disclosure model that’s appropriate, then consumers could make the choice,” says Pollock. “If my embedded commission is $1,000, or whatever that number is, then you have a choice, as long as they disclose that.”

Read: Show clients your insurance commissions

Meanwhile, Byren Innes, senior strategic advisor at PwC, suggests advisors get ahead of regulatory changes by adapting the current frameworks; getting educated and demonstrating their expertise to clients; and responding to the change in client preferences by becoming more accessible online.

Originally published on Advisor.ca

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