I thought it was an April Fool’s joke when I received an email today indicating that the U.K.’s Financial Services Authority had ruled that Investment Advisors will no longer be allowed to collect commissions starting in 2012.
It is somewhat ironic that I had made the point earlier today that asking financial advisors to act like fiduciaries while paying them commissions is a laughable proposition, but apparently the Brits have woken up to this fact.
British IAs (short for Investment Advisors), will be allowed to set their own charges for advice, which will be independent from products sold. If this were to happen in Canada, then mutual fund MERs would drop by 30% – 50% (on average) and there would no longer be any financial incentives for advisors to recommend certain products over others (different products can offer varying levels of embedded commissions).
James Langton covered the story on June 25th here.
Click here to read more about the details as reported by Philip Porado from Advisor.ca.
Looks as though they are trying primarily to make the commissions visible by replacing them with upfront fees. That will help level the playing field with passive index funds – people will be able to ask if they are getting their money’s worth from the fees.
I think Canada needs to get a national securities commission first. If nothing else, I think the commission schedule needs to be in prospectus and fully explained by mandatory requirements.
I finished the CSC exam. By the way, what should I do next? Do I need the CPH?
That’s a great step for the UK. Investors are best off if advisors are compensated for their time on a hourly basis.
A good idea but I think most investors might find that finding an advisor is a lot harder than it is now (which isn’t necessarily a bad thing).
Four Pillars: Finding an investment advisor now is a like looking for a mosquito beside a swamp :-) The challenge is in fighting them off.