The article “Why We Need Regulations To Protect Seniors From Unscrupulous Financial Advisers” was originally published on Financial Post on July 8, 2016.
The Ontario Securities Commission has announced the formation of the Seniors Expert Advisory Committee, with the deadline for applications set for July 29. The committee could be instrumental in preventing the overt financial abuse of Ontario’s elderly. But, even more importantly, it can alert children and grandchildren to the more covert abuse that the financial industry is quietly getting away with every day.
“The Seniors Expert Advisory Committee will give the OSC access to a multidisciplinary team of experts on issues related to older investors, providing us with valuable input,” says Maureen Jensen, chairwoman and CEO of the Ontario Securities Commission.
The key issue for the committee, as I see it, relates to the lack of a fiduciary standard for Canadian financial advisers. This is a real risk at a time when our aging population is wealthier than ever and becoming increasingly vulnerable due to the natural changes in cognitive function as we age.
Consider this: your aging parents and grandparents’ financial advisers have no obligation to provide them with advice that is in their best interest. So, unlike their doctor, pharmacist or accountant, there is nothing to require their banker, mutual fund salesperson or insurance agent to put them first. To me, this is like having a fox guard a hen house.
Here are some things that children and grandchildren should look out for:
1. Bankers who direct savings to proprietary, in-house products, despite the potential of better, non-bank alternatives.
2. Investment advisers who use mutual funds with embedded fees of two to three per cent, which nearly guarantee retirement savings will generate little to no return.
3. Insurance agents offering insurance solutions for all financial needs, when non-insurance solutions may be better or when no insurance may be needed in the first place.
The OSC initiative comes in the wake of last year’s establishment of The Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives by the Ontario government. The province has also signed on to the proposed expansion of the Canada Pension Plan. It seems clear that retirement and seniors are important for the province, but unfortunately, there is push-back from the industry.
According to the Investment Funds Institute of Canada, “Financial advisers already are subject to specific rules and regulations that clearly address the main issues that arise in the relationship between a financial adviser and his or her client. The introduction of a statutory fiduciary duty would not help to clarify the scope of an adviser’s duties from situation to situation.”
Quite to the contrary, I think a fiduciary duty does clarify the adviser’s duty in all situations — put your client first, no matter what. This is particularly important because most people have no idea what sort of financial practices to seek out or avoid in the first place.
It’s one of the reasons that the U.S. Department of Labor introduced new rules in April forcing American financial advisers managing retirement and pension accounts to act in their clients’ best interests — the so-called fiduciary standard that the Canadian industry is trying so hard to avoid. White House estimates peg the cost of adviser conflicts of interest at US$17 billion a year, primarily due to investors being placed in products with excessively high fees.
As near as I can tell, the only negative impact on seniors and retirement security from a fiduciary standard are on the retirement savings of the unscrupulous financial advisers (hopefully, a minority of advisers out there) who are raking in those bloated fees.
The OSC committee will include members from a variety of practice areas, ranging from lawyers and academics to doctors and the financial industry. It will be interesting to see which financial industry participants end up on the panel, given that everyone in the industry has varying degrees of conflicted interests. The pessimist in me can’t help but think that some people in the financial industry benefit from passive, uninformed seniors and their busy, trusting children.
As an Ontarian with aging parents, I do hope the Seniors Expert Advisory Committee considers the benefit of a government-imposed fiduciary standard to ensure that all seniors — my parents included — are protected. It seems clear the financial advice industry won’t self-regulate and do it themselves.
Jason Heath is a fee-only Certified Financial Planner (CFP) and income tax professional for Objective Financial Partners Inc. in Toronto.