WHATEVER HAPPENED TO THE FAIR DEALING MODEL?
The TAMRIS Consultancy, an Asset Management Research and Investment Rights Consultancy, says that consumers can and must demand better transparency of service and value for money through disclosure of service standards, costs and the accountability that comes from performance analysis and its justification.
With the latest reports from the Registration Reform Project it is palpable that the industry does not have the will or the imperative to do this itself. Critically the reports from the three RRP working groups lack the necessary intellectual, analytical and moral weight on which to place the reliance of a whole nation of savers and investors.
The regulators and the representatives of the industry’s firms should and could have done much more than the pages of cannot, will not, know not and not out of my back pocket!
While the original Fair Dealing Model had numerous fundamental weaknesses, it was nevertheless a profound and potentially far reaching document that should have represented the beginning of a much needed transition of the Canadian Financial Services Industry. That the Fair Dealing Model project has all but disappeared is a testament to the true interests of an industry that is in truth a law unto itself.
But the outcome should have come as no surprise. An industry that is regulating itself is not going to make a bold leap into the competitive practises of transparency, disclosure and value for money. True competition is the only market place where the original core values of the Fair Dealing Model can be moulded and the conflicts of interest truly managed.
And, you cannot force any company to deliver any product or any service at any given price and, in any given manner and you cannot in truth regulate the quality of a financial service or product. Only the competitive forces that disclosure, transparency ad accountability can bring can force the market for financial advice to change.
You can, however regulate how a business operates with respect to the disclosure of its services, its service processes, its service costs, its representation of its services and products and, you can demand that the value added or performance of its wealth and asset management services be accountable and comparable. You only need to look at the disclosure and transparency required to raise capital on the stock exchanges and the transparency of price and costs of transactions in the securities market to appreciate that this is an achievable objective.
The only way competition will work in the current market place is if consumers are a) educated over investment and its risks, b) have access to the necessary information that will provide both choice and competition in the market place and c) can independently purchase investments at cost excluding up front, deferred and embedded commissions.
Education and its sister risk assessment however needs to be much more realistic, much more substantial and much more objective than that seen in today’s market place.
Likewise transparency of service costs, processes, methodologies and systems need to be much more detailed, much more open and openly comparable.
True competition in wealth and asset management services is only going to happen if companies have to openly compete on the level and quality of service, on cost and on the value added by their services. If service (security research and selection, asset allocation and asset management, portfolio construction, planning and management) should be the differentiating factor then investors should logically be free to buy F class mutual fund units while advisors should provide disciplined, structured wealth management services.
However, if true competition is going to be mandated, this will mean that all companies offering financial advice, as opposed to securities recommendations and transactions, will need to conform to basic minimum standards of transparency, disclosure and accountability. Many criticise the lack of regulation of financial planning, whereas in fact financial advice is not regulated at all, even amongst those whose securities businesses are regulated.
TAMRIS is not against the selling of products and investments. It does however believe that the sale and delivery of products and transactions on the one hand and the provision of advice and wealth management on the other are incompatible without regulation, education, accountability, transparency and competition. Only within such a framework can natural conflicts of interests be kept in check.
But, here lies the rub. Most of the industry’s investment advisors are tied to brokerages and financial institutions which depend on the sale of products and investments for their revenue. If disclosure and transparency is not mandated and regulated and if competition and education is not enhanced the natural inclination of industry will continue to be more of the same.
It should not be a shock that one of the common threads that ran through all the working group reports was a concern over the costs of greater accountability, disclosure and transparency. Many, it would appear, continue to favour the ignorance of the masses and the benefits this bestows on their margins and remuneration.
If competition and accountability is indeed enhanced then the industry will need to upgrade its business and service processes and systems towards delivering the wealth and asset management services that this competition will lead to. The costs of this change will tower besides the costs of implementing the Fair Dealing Model.
Until then the consumer needs to educate themselves, to look beyond the information provided by the institutions and to demand greater accountability of decisions, greater disclosure of costs and better standards of service.
The TAMRIS Consultancy