Former Montreal Exchange CEO argues for embedded commissions

par Andrea Lubeck | June 06 2017 07:00AM

Photo: Freepik

Pierre Lortie, Senior Business Advisor at Dentons Canada, believes the positive impact of advice plays out and accumulates over time. Eliminating embedded commissions would be a bad idea, he argues.

Lortie shared these views at the 11th Compliance Summit organized by the CFIQ, the Quebec voice of The Investment Funds Institute of Canada, on April 26. Lortie is renowned on the Québec business scene, having led many pillars of Québec Inc., including the Montréal Exchange, Provigo and Bombardier Transport.

To bolster his arguments, Lortie cited data from the Center for Interuniversity Research and Analysis of Organizations (CIRANO). This organization found that an investor who works with a financial advisor will accumulate 3.9 times more financial wealth after 15 years than an investor who skips advisory services.

Savings allocation

“The difference between people who are richer and poorer at retirement mainly lies in the way they allocated their savings in different types of investments. Investors who deal with financial advisors tend to have a balanced portfolio, much of which is placed in riskier investments like mutual funds, which offer better returns,” Lortie explains. 

Eighty per cent of mutual funds are bought through a financial advisor, he continues. “Regulation that changes the compensation structure for mutual funds will have a major systemic impact on the whole Canadian financial sector,” he says.

A logical approach

Banning embedded commissions would deprive a large number of households of financial advisors, he argues. His solution would be to integrate the cost of the service in the product. “It’s the logical approach found in almost all industries. Service quality is superior when compensation takes place over time,” he explains.

He gave the example of the United Kingdom: after embedded commissions were axed, the number of households that invested without advisor assistance rose from 33% to 67%.