A transaction driven model is hopelessly market inefficient resulting in uncompetitive market outcomes and sub optimal consumption, production, savings and investment decisions economy wide. We can only have a competitive market place for retail financial services by removing transaction remuneration and adding statutory best interest standards.

In a competitive market the buyer’s demand curve and the supplier’s supply curve should intersect. The demand and supply curve should hold all the relevant information about a buyer’s and supplier’s preferences. Where the two intersect is determined by the price.

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Transaction remuneration within an advice based market place results in 1) advice market failure, 2) transaction market failure, and 3) fund management market failure.

The TD Bank Financial Group argue that the market for mutual funds is already competitive and that further regulation will negatively impact competition.  It also asserts that if the perceived market failure is one of conflict of interest, then this is best dealt with by clear disclosure. 

It is my opinion that these arguments are severely flawed and that only a best interests standard free from transaction remuneration conflicts can lead to a competitive market outcome in all 3 key areas noted:

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