Regardless of how they’re compensated, advisors are often the only thing standing between an investor and a poor, life-altering investment decision.

That comment to CSA on the proposal to ban embedded commissions comes from Brian Hein of Hein Financial Group. In his comment letter, he notes he’s been an advisor for 37 years and has a mostly fee-based business, so doesn’t have a vested interest in opposing the proposal.

His remark about investors and their poor decisions is made in the context of robo-advice, which CSA says will likely fill any potential advice gap resulting from the proposal (for mass-market households).

Though Hein supports investing with fintech, he notes its deficiencies. For instance, investors can be apathetic about their portfolios, rarely changing them as their life circumstances change. Further, investors often assume they can take more risk than they can actually stomach.

“The next big market downturn — and I’ve seen a lot of them — will shake the robo-advice industry to its very core,” he says.

Apathy gap

But more significant than an advice gap is an apathy gap.

“You can’t regulate consumer apathy, inaction or a disciplined approach to personal financial management,” says Hein, adding that apathy is evident in the underuse of RRSPs and TFSAs by average Canadians.

Citing research from the University of Calgary and describing the discipline advisors offer to clients, he adds, “There’s a reason investors save 45% more when they have an advisor.”

Read: Mutual funds help boost Canadians’ net worth in Q1

However, he says the proposal does nothing to increase the numbers of investors seeking advice.

“People need more options to obtain financial advice, certainly not less,” says Hein. “This is what is missing in this debate.”

More managers, more problems

For instance, if the proposal results in more advisors becoming discretionary managers — one potential outcome for which CSA asked for comment — that’s not of benefit to investors, says Hein.

“Discretionary managers don’t create […] savings discipline […] any more than a good advisor [who] receives embedded compensation does.”

In fact, he says this potential outcome could be a recipe for disaster, leading to client abuse and fraud.

“After almost four decades in this business, I can easily name a half dozen ways to really rip off a client, and none of them are related to embedded commission[s],” says Hein. “But every way to do it is made that much easier if you are a discretionary manager.”

He adds that CSA should enforce existing rules before proposing a ban.

Read: Advisor or adviser? It’s not that simple

Industry stagnation

David Rupert, a branch manager at Desjardins, says in his comment letter that the proposal won’t help meet the demographic challenges faced by the industry.

“Many advisors are baby boomers, and they and their clients are getting older. If we do not allow new independent advisors to be fairly compensated for the effort that goes into finding and servicing clients, we will have no new young people coming into the industry.”

The proposal serves to drive independent, commission-based advisors from the industry, says Rupert, “leaving those who actually need help at the mercy of the banks” and other big fund companies.

Letter writer Troy Iwanik, an associated investment and insurance advisor at HollisWealth, describes himself as a younger, independent advisor who relies on embedded commissions for a large percentage of his income.

“Banning embedded costs will have a negative outcome for younger advisors, like myself, who have multiple smaller accounts, as well as the middle-class clients that we serve,” he says, referring to the potential for an advice gap.

He thinks recent regulatory changes like CRM2 and Fund Facts are “a great start to full disclosure.”

But: “Having the fund companies send out an annual fee letter should be introduced also, so the investor can see the full costs of the funds. It is important to have the banks send out the same letters and materials as well.”

How to best lower fees

The proposal outlines potential outcomes if embedded commissions are banned, such as increased price competition and the ability of new lower-cost product providers to enter the market — outcomes that would put downward pressure on fees.

Read: Client costs will fall under commissions ban: letter to editor

CRM2 has already resulted in lower fees, says Hein, though, like Iwanik, he doesn’t think it goes far enough.

“The complete, full disclosure of all fees and taxes on investment funds [would] be good for the investor and [would] undoubtedly drive down total investor fees,” he says.

Further, he calls out CSA for favouring ETFs and index funds because they have perceived lower fees. In fact, these funds could be more expensive, he says, when things like trading fees or tax preparation costs are taken into account. (The concern about how the influx of ETFs and index funds affects the markets is a whole other discussion, Hein adds.)

Read: How to use ETF Facts

Further, CSA’s endorsement of one type of investment “ironically flies in the face of the fundamental mantra of knowing your client,” he says.

On the other hand, Hein supports reducing the number of fund series, saying a ban on DSC and low-load funds would solve several issues in one simple step.

Read: DSC alternative has limited merits

“Don’t carpet bomb and risk a lot of collateral damage when a surgical strike will yield you far better results,” he concludes.

Rupert suggests CSA cap the compensation that manufacturers can offer advisors.

That way, “the CSA can protect investors while ensuring this industry […] is allowed to offer Canadian investors, big and small, the opportunity to obtain [un]biased, independent advice.”

He urges CSA to build on “the findings and spirit of the Stromberg commission.”

Read Hein’s letter, Rupert’s letter and Iwanik’s letter.

Find all comment letters on the proposal.

Over the next few days, will summarize more comment letters from a broad range of stakeholders.

Also read:

Industry response to embedded commissions ban: IFIC and Advocis

Ban on embedded commissions ideal but not imminent: OSC director