A new research paper from the C.D. Howe Institute makes two points: One that advice to Canadians of modest means is lacking and, two, that cumulative regulatory efforts lacking benefits analyses could be exacerbating that trend.
“Limited financial participation at the individual household level has broader economic consequences: lower household financial resilience, reduced national savings and diminished capital formation constrain economic growth and productivity in Canada,” Gary Edwards, co-founder and principal of Golfdale Consulting writes in the paper Regulatory Reset: A Policy Roadmap for Expanding Financial Advice to Middle and Lower Income Canadians. The paper analyzes the link between cumulative and uncoordinated regulation and a widened advice gap in Canada, he adds.
“Across numerous overlapping legal jurisdictions, regulations, particularly in the financial services sector, continue to grow at a rate where the costs are disproportionate to the gains, and are having a deleterious impact on economic growth and productivity,” he writes.
Fragmented delivery of financial advice
The paper details the gap in advice available to those with fewer investable assets. In Edwards’ experience conducting research commissioned by Primerica Canada on the experiences of modest and middle-income Canadians, “I have found a pattern of fragmented delivery of financial advice, particularly among lower-asset households,” he writes. “Findings suggest that while advice may be available, it is not reaching Canadians in an equitable or consistent way.”
In matters of regulation, meanwhile, Edwards examines a number of other jurisdictions, noting that Canada has yet to adequately assess the cumulative impact of its financial regulations. More than 25 Canadian financial services regulatory authorities are identified in the paper. And while some have shifted towards principles-based guidance intended to offer flexibility, he points out that even flexible approaches can create cumulative compliance obligations, “particularly when layered across multiple regimes and frameworks,” he writes.
Remove barriers to innovation
“While Canadians have historically enjoyed broader access to financial advice than their counterparts in the United Kingdom and Australia where regulatory overreach contributed to a collapse in mid-market advisory services, Canada has not been immune to this trend,” he adds. “A systemic, evidence-based review of existing financial regulations, focused on identifying outdated or duplicative requirements and removing barriers to innovation and access, might help Canada reverse this trend and improve access across the income spectrum.”
The paper calls for cost benefit analyses when regulators are introducing new rules – these are generally not conducted or published when they are. It also calls for the adoption of international best rule-making practices that include structured peer reviews, parliamentary scrutiny and cross-agency panels. “This rigorous, evidence-based approach should apply not only to formal statutes and regulations but equally to self-regulatory rules and even non-binding guidance,” it states.
“Require a clear, data-driven articulation of the issues regulations aim to address, including measurable consumer harm and industry impact. Simply relying on catch-all concerns, such as conflicts of interest and a perceived potential for harm, is not sufficient in the era of data. New rules, regulations, bans and compliance obligations should only be introduced through an evidence-driven method and not on a hunch or preference for a type of business model.”
