Beyond the rise lies consequence…..

Beyond the rise lies consequence. The CSA would do well to think beyond it and do the right thing: start building the road to best interests standards and the removal of embedded commissions.

I usually have a few posts simmering and each and every one of them has to fight for their place, but at the moment I easily have 10-12 blogs waiting to burst out.  

A central theme of all of these potential posts is that we live in a very high risk investment and economic environment and the consequences of poorly structured, high cost, and inappropriately leveraged portfolios are likewise rising.

In Canada we are in the midst of a pretty intense fight for higher advisory standards that would take away embedded commission from product sales and place the client’s best interests above those of the advisor, the firm and the institutions.

Yet, everywhere you look you realise just how woven into the fabric of time and structure the freedom of advisors to wheel and deal is.  It is almost a divine right and one supported by the overwhelming majority of the legal establishment.   Attitudes to leverage, for example, epitomise the wheel and deal mindset and lack of respect for the interests of the client.   Many of the effects of inappropriate leverage have featured in recent articles and in OBSI name and shame cases.

We have a powerful juggernaut which the regulators may well be fearful of stopping.  But stop it they must, because the higher the markets go and the longer the cycle extends the greater the risks and consequences of excess and inappropriate allocation. 

Many seem to be arguing that we should wait and see how the client relationship model and the point of sale and other rules settle into the landscape, but in truth none of these rules change anything.   They are no more than lipstick on the lips of a pig. 

The logjam of rules and regulations is really due to the regulators’ ineffable delay in working out how to deal with an industry that is pretending to offer advice while placing the transaction and the return of the transaction first.  Most regulatory change to date has involved trying to finesse the “unfinessable”: regulators have been trying to improve the implementation and regulation of the transaction and have ignored the real issue.

Recent consultations, half hearted and bereft of character as they are, have re-focussed on the issue of advice and the regulation of such.  The can has been kicked down the road for too long, but my concern is that it will be kicked for a good deal longer. 

In the end we have to ask ourselves, why should the ordinary investor pay for the delay in modernising regulation since the publication of the Fair Dealing Model?  Because that is the essence of many of the arguments against change.  The logjam of rules we are being asked to allow to settle are all rules designed for the delivery of the transaction and not the delivery of advice.  

Beyond the rise lies consequence. The CSA would do well to think beyond it and do the right thing. Start building the road to best interests standards and the removal of embedded commissions.

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