Some industry firms are opposing regulatory reform for segregated funds, warning about an advisory gap – a warning that was also raised, ultimately unsuccessfully, ahead of the introduction of a deferred sales charge (DSC) ban for mutual funds.
The latest advisory gap warning comes from: Primerica white paper released on Thursday.
Reforms such as the DSC ban – already in place for mutual funds and expected to soon be extended to segregated funds – and proposed changes to remuneration in segregated funds could lead to reduced access to advice, the paper says.
“Canada’s current considerations for mutual fund and segregated fund advisory boards, like the regulations implemented in the UK, risk limiting access to financial advice and, worse still, discouraging wealth creation for millions of Canadians, especially those who They have limited financial resources,” he says.
The Primerica paper points out that since reforms began to be implemented in the UK in 2013, advisory fees have increased by 0.25-0.5%. According to the article, this increase is largely due to the shifting of compliance costs to investors. Additionally, fewer companies are now willing to take on smaller clients.
Meanwhile, in Canada, the Canadian Association of Mutual Fund Dealers reported that the number of advisors in the financial advisory channel remained virtually unchanged between 2018 and 2020 – in contrast to 2016-2018, when the number of advisors in this channel decreased by 17% (i.e. 5,681 advisors). ). , as companies restricted DSC sales ahead of the 2022 ban.
The MFDA says the effects of the DSC ban are likely to dissipate by the end of 2020.
Many large dealers have halted new sales of DSC and low-load segment funds when they halted mutual fund sales, Advisor.ca told Investor Economics last fall.
More Canadians also have access to online investing, as demonstrated in 2020 when they opened more than 2.3 million do-it-yourself (DIY) accounts, an increase of approximately 172% year-over-year, according to Investor Economics.
Primerica is not alone in appealing to the advice loophole to stall regulatory reform in seg funds, as consultation submissions on upfront commissions show.
The company has a vested interest in maintaining the status quo. How Primerica Annual Report 2022 states, the DSC ban and changes to origination commissions, “if adopted, would require us to restructure our compensation model for the sale of segregated funds and could have a material adverse effect on life insurance products offered in Canada.”
For the year ended December 31, 2022, Canadian segmented funds accounted for 2% ($195 million) of the company’s investment and savings product sales and 3% ($2.5 billion) of average client asset value.
The company employs about 10,500 sales representatives licensed to sell segregated funds in Canada, according to its annual report.
