Advisor compensation model flawed: FPSC

Financial Planning Standards Council (FPSC) has come out in support of the Canadian Securities Administrators’ (CSA) Consultation 81-407 Mutual Fund Fees.

Responding to the CSA’s request for comments, FPSC says it agrees that the vast majority of financial services in Canada are compensated through product sale thus creating “a fundamental flaw in the configuration financial services industry.”

Read: CSA to scrutinize mutual fund fees

The CSA paper puts forth the notion that “the current mutual fund embedded trailing commission structure, which offers a one size fits all approach, seems potentially misaligned with the current practice of providing services tailored to an investor’s personal circumstances, expectations and preferences.”

The current regulatory system in Canada, says the FPSC submission, is constructed around product transactions, and thus only product transactions are ultimately regulated.

Read: Fee-for-advice model lacks transparency: IFIC

The Council argued the current compensation model for advisors and dealers was analogous to a model where doctors were paid by pharmaceutical companies “whose drugs the doctor prescribed, based on a ‘pay schedule’ established by the drug company.”

The risk, it says, is further compounded by the fact that the current compensation model does not distinguish between the service provided by a product salesperson and a fully qualified financial planning expert such as a CFP professional with a lot more accountability.

Read: Worry about value, not fees

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.