Canavan blasts POS delivery, HST

By Steven Lamb | September 21, 2009 | Last updated on September 21, 2009
4 min read

Last week Joe Canavan announced his retirement as CEO of Assante Wealth Management. Over the course of his 25-year career, he has witnessed a great deal of change. He has strong opinions on what the industry has accomplished, and on where it is going.

Speaking with, he praised the advice industry for its drive toward greater professionalism. Education has replaced material incentives and travel bonuses as the strong sales culture has shifted toward needs-based planning.

“Twenty-five years ago, [the industry] was just a bunch of guys selling stuff. Today, they’re far more professional, with professional designations,” he says. “I’m very proud of the educational side of things and how the industry has come onto that.”

To drive home the importance of planning, Canavan points out that financial problems are central to many family breakdowns. Providing stability on the fiscal front lessens these pressures.

“If we do a good job, more of these families will stay together because they won’t have that financial hardship. I know it sounds like I’m reaching a bit, but that’s kind of how I characterize it,” he says.

“If we do a great job, then that client gets to send their children to whatever university they want to go to, they can go to Disneyland on March Break, they can have a cottage and they can retire well,” he says. “That’s the business that we’re in, creating wealth and prosperity for Canadian families.”

But he says a number of hurdles have been cropping up lately which make that more difficult. The point-of-sale initiative, for instance, will create “an administrative nightmare” for advisors.

“Can you imagine, if you’re an advisor in Saskatoon, and you’ve got a client out near Lloydminster, you’ve got to physically deliver something to that 68-year-old client, in February, before they can do a transaction?” he asked rhetorically. “And you have to have a document for every single thing you’re recommending. That is just nonsensical.”

While he appreciates the importance of transparency, he says clients could be scared off by the additional paper being forced on the.

“It’s going to increase the cost to the client, and I don’t even know if the client wants that level of information and disclosure.”

One of the prime drivers behind the POS documents was to improve transparency in advisor compensation, but there will soon be another player that will be reaping far more from mutual fund investors than the advisor. The governments of British Columbia and Ontario are implementing a harmonized sales tax, which will blend their provincial sales taxes with the federal goods and services tax.

The problem for investors is that the new HST will be applied to all goods and services that are currently subject to the GST. That amounts to a new provincial tax on mutual funds that are domiciled in either province. Since almost the entire Canadian fund industry is based out of Ontario, investors across the country will be paying into Ontario’s coffers.

“I don’t like this new HST, I think that’s a crime. It’s just an assault on Main Street Canada,” Canavan says. “That’s just a money grab — a half a billion dollars a year. The government has been encouraging people to invest for themselves all these years, and now they’re trying to take it all back.”

He estimates the HST will equate to a 10% increase in managements, adding 20 basis points to the average 2.00% MER.

“If you add the GST and PST together to get the HST, the total aggregate amount is more than we pay for portfolio management and operating expenses,” he says. “They’ll get paid a lot more than Gerry Coleman, Danny Bubis or Peter Cundill.”

He calls Ontario’s threat of a PR war against the fund industry “an affront; that is mob thinking, or bullying. That is not being a good political leader. I was really shocked by that.”

“This is what happens any time somebody gets found out. They figure they’ve got the wool pulled over everyone’s eyes, nobody’s going to notice, it’s all hidden inside of mutual fund fees,” he says. “And it’s not once; it’s every year.”

He suggested that the government of Ontario probably didn’t think anyone would notice a recurring sales tax on mutual fund management services. It could have been a misguided attempt to get in on the ever-popular Canadian pastime of bashing the financial services industry.

“Maybe they thought that this was a shot at Bay Street, and they were going to hurt Bay Street,” he says. “[But] mutual funds are a Main Street product. They aren’t attacking fat-cats, they’re attacking Saskatoon, North Bay and Chicoutimi. They’re attacking the average person trying to save for their retirement.”

He points out that the average Canadian should not be invested in individual stocks or bonds, as they have neither the emotional tolerance nor adequate access to investment information.

“Mutual funds give you access to superstar managers,” he says. “These guys are the superstar portfolio managers that are available to mutual fund clients. If [the government] continues to do this, they’re going to drive people to invest in things they shouldn’t be in.”


Steven Lamb