CSA Best Interests Consultation – Are savings rates really at risk from enhanced consumer protection?

If you read the submissions to the CSA’s Best Interest standards consultation you would have thought savings rates are at risk if we introduce higher standards.  In truth, savings rates are much more impacted by other factors and trends, and the segment of the market place likely to be impacted by their inability to pay for fees and personal face to face advice based services, is already one often eschewed by financial “advisors”.   We need change and we need to develop that more efficient and cost effective ways of delivering advice and it is not going to happen by keeping things the way they are.  

The Investors Group report for example states: “the proposal has the potential to diminish personal saving by Canadians due to several unintended consequences, reducing the positive impact on savings through the well regulated financial services industry and the resulting burden on governments to care for Canadians in their retirement years”.

Personal savings rates in Canada are already at low levels, irrespective, and this has probably had nothing to do with better regulation of financial services.   Low wage growth, income inequality, too much  consumption, lower economic growth, higher levels of housing related debt,  and a few other dynamics, are some of the many reasons, but not regulation of the financial services industry.  

During periods of low savings rates, low wage growth, low investment returns, the costs and expenses of retail investment products have a much bigger impact on net saving.   Raising standards and making the industry more process and system focussed may end up reducing the costs of advice while the increasing the accessibility.  This should be a positive for investors, increasing after tax, after cost returns and enhancing their ability to make future consumption/saving decisions.

At a time when much more wealth worldwide is concentrated in the hands of the top 1%/10%, with the bottom three deciles especially (those more likely to be a burden on the government) owning virtually next to nothing, I can already see the social impact of low savings rates amongst the less well off, but I fail to see the significant impact on wealth and saving of raising standards, for this will need to negatively impact the wealthier client.  

It seems to be relatively standard advice in the industry to get rid of smaller clients and to focus on the wealthier ones, so to all of a sudden start worrying about their access to financial advice and products seems a bit disingenuous.  The challenge is of course delivering wealth management to smaller investors less able and willing to pay fees, but the financial services industry has hardly been sympathetic to their cause.   

..according to the study (Price Metrix study)”, small households are 108 times more likely to leave an advisor than become a large account…..Firms and advisors need to be confident about the upside of parting ways with small households,” Doug Trott, president and chief executive of PriceMetrix said…. “Losing a non-productive client to make room to better serve priority clients will significantly contribute to the health of the business and to the advisors’ books.”


In our experience, if advisors can move their top fourth and fifth deciles of clients to an ROA of 1%, they can get rid of the bottom half and increase revenue at the same time.


The only way you’ll have the time and energy to attend to your top clients is to tone down the sheer volume of unprofitable clients. The reality is that your current revenue and future growth are much more dependent on the overall satisfaction of the top 10% of your book rather than the bottom 30%.

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