Head of Power Financial warns against banning commissions

In his address to Power Financial Corporation’s annual shareholder meeting on May 12, president and CEO R. Jeffrey Orr discussed the threats and opportunities presented by new technology, the value of personal advice, and the dangers of banning commissions.

Orr began his speech by noting that technology is changing not only client expectations, but also the way that financial products are conceived, managed, and delivered. Some technological advances have allowed new entrants to gain a foothold in the industry. "Many of these so-called Fintech players will never achieve scale, but some will, and collectively they are nonetheless forcing incumbents to invest heavily while contributing to a general downward pressure on pricing," he said.

Scale, brand and strong client relationships

Orr offered examples of how Power Financial is investing in ways to meet and exceed client expectations: subsidiary Great-West Life has created HelloLife, an online platform which allows advisors and customers to work on retirement plans collaboratively and Power Corp has also made a $30 million investment in the robo-advice firm Wealthsimple. "Scale, brand and strong client relationships will ultimately determine who prevails," concluded Orr. "We believe we will emerge with even stronger businesses, assuming we deliver competitive products, retain high-quality people and make the appropriate commitment to technological change."

The role that financial advisors play in society

Orr went on to describe the role that financial advisors play in society. He argued that they have a direct effect on the financial well-being of their clients because they “encourage good savings discipline, get people to invest in higher-returning asset classes, help optimize the use of available tax-incentivized savings programs, and help mitigate people’s tendency to want to sell everything when markets are down”. He emphasised that advisors provide these services to people from all economic groups, but warned that eliminating embedded commissions could very well drive them out of the lower segments of the market.

U.K. and Australia

"Some clients – notably less affluent ones – will be either unable or unwilling to pay separately for the product and the advice. Therefore, when the option of embedded compensation is eliminated by regulation, customers use less financial advice, and savings discipline and wealth accumulation are negatively impacted," said Orr. "Advisors who are focused on people with lower levels of assets drop out of the market or focus on higher net worth clients. This is precisely what we have seen in the U.K. and Australia."

Instead of banning commissions, Orr said that Canadians would be better served if regulators focused on increasing transparency about compensation and encouraging higher qualification standards for financial advisors.