Fixed commissions are how the majority of Canadians prefer to pay for financial advice, according to a consumer satisfaction survey commissioned by Advocis, the Financial Advisors Association of Canada.

The banning of third-party commissions on the sale of investment products – as has taken place in the United Kingdom and Australia – is under serious consideration in Canada to avoid conflicts of interest. But 53% of those who participated in Investor Insights on the Financial Advice Industry, a survey of 1,739 Canadian investors conducted this year by PMG Intelligence of Waterloo, Ont. – said they prefer to pay for investment advice through ongoing fixed commissions of 1% of the value of the product.

Twenty-six per cent of those surveyed said they wanted to pay a percentage of assets under management (AUM) as set by their financial advisors. And 4% preferred an hourly fee of between $150 and $350.

The survey results were released at Advocis’s seventh annual regulatory symposium held in Toronto on Nov. 16.

Freedom of choice

Canadian investors want freedom of choice. Nine out of 10 survey participants said they wanted to determine for themselves the type of fees they pay financial professionals – whether an hourly fee, a percentage of their assets under management, or an embedded fee. When asked whether the government should leave the choice of how financial advice is paid for up to the consumer, 88% said yes.

“The Advocis position on advisor compensation is that consumers should have choice,” said Greg Pollock, president and chief executive of Advocis. “Advisors and their clients currently have the right to choose the compensation model that is right for them, whether it is commission-based, fee-based or salary and we believe this choice serves consumers best.”

Thirty per cent of those surveyed agreed that the manner in which an advisor is paid could result in a conflict of interest. However, 91% of respondents stated that “my financial advisor has my best interests at heart and puts them ahead of his own financial gain.”

High level of trust

The high level of trust that Canadian investors place in their advisors is prompting some in the industry to say that, if the system works to the satisfaction of consumers, why change it?

Some claim that banning commissions would not be in the best interest of all investors.

“If a ban on commissions, as some are calling for, is successful, we will see a sharp decline in access to professional advice because those who need it most won’t be able to afford it,” Pollock said.

Embedded fees, he said in his opening address at the symposium, “allow millions of Canadians to access professional financial advice, and multiple studies have demonstrated that consumers who receive financial advice are better off than those that do not.”

Advice gap

In the United Kingdom, he noted, the average amount of assets required to engage an advisor has risen since the ban on commissions from £47,610 to £66,702. “That’s over $135,500 Canadian! This clearly shows the increasing advice gap in the UK.”

He added that food banks in the UK are now gearing up to offer financial advice. “Is this what it’s coming to? Everyone deserves the help of a financial advisor – not just the rich – but that’s not where some of the regulatory trends are taking us.”

U.S. Securities and Exchange chairwoman Mary Jo White has said she wants to slow down regulatory decision-making in order to avoid unintended consequences. “White said that ‘if, at the end of the day, you are depriving retail investors of reliable, reasonably priced advice, you will not have succeeded in your purpose.’ I would agree,” Pollock said.

Dean Connor, president and chief executive of Sun Life Financial, said in his keynote speech that this is a great time to be a financial advisor. “With low investment returns and volatile markets, your clients need your advice more than ever. They need your help to sift through the shifting sands of the debate over advisor compensation, CRM2, and robo-advisors. They need your help in reducing risk in the de-accumulation years of their lives.”