It's that time of year again. Inspired by the renaissance a new calendar evokes, we resolve to achieve all sorts of noble things in the coming year. Having tired of an annual ritual focused on my personal foibles, I took a new tack in the resolutions department for 2011: I decided to make some New Year's resolutions for the Canadian financial-services industry and its overseers. Here are 10 resolutions that should, if followed through, contribute positively to the financial health of Canadian consumers in 2011 and beyond.
1. The financial-services sector will define standards for the use of the job title "financial advisor." Currently, this title can mean almost anything. The website of the Financial Advisors Association of Canada lists 12 different financial designations members might hold, and that's not a complete list. Consumers want and need a few meaningful financial-advisor designations with specific educational and work experience requirements.
2. The financial-services sector will support statutory changes requiring financial advisors and firms to have a fiduciary duty to their clients. According to the industry-financed consumer-advocacy group FAIR Canada, financial advisors and firms in Canada are currently required only to offer clients advice that is "suitable". This unacceptably low standard allows advisors to suggest investments which may be considered suitable, but are not in the client's best financial interest.
3. Financial advisors will fully disclose to clients how they are compensated. Many advisors discuss fees with clients as a standard practice, but this is by no means universal. In order to make the best investment decisions, clients need to know how their advisors are being paid, and how much.
4. Financial advisors will prepare an investment-policy statement for each client and review the contents with the client at least annually. Again, this is standard practice for many, but not all, advisors. Without setting out the investment goals, strategies and rules that guide the advisor-client relationship, how can an advisor provide meaningful financial advice?
5. Financial-services regulators across Canada will support the creation of a national securities regulator. It's ridiculous for a country as small (economically speaking) as Canada to have 13 different jurisdictions (10 provinces and three territories) regulating the securities industry. A single regulator would provide stronger and more consistent protection for investors in all parts of Canada. It would also lower compliance costs for industry players, and hopefully savings would be passed on to retail investors.
6. Mutual-fund companies and their regulators will agree to add extra details to Fund Facts, the new disclosure document being rolled out this year. Improvements that I'd like to see are clearly stated fund objectives; performance data for the relevant benchmark and for other funds in the same asset class; name(s) of the individuals managing the portfolio and their tenure with the fund; distribution history with tax status; and detailed discussion of risk.
7. Mutual-fund companies will lower management-expense ratios and put an end to reports that Canadian mutual funds have some of the highest MERs in the world. Clients will be happier and the companies will avoid the embarrassment of future studies that give Canada poor grades for fund fees and expenses.
8. Discount brokers will inform customers of the commission cost when they buy or sell a bond instead of burying the cost in the bond price. Brokers post their commissions to buy and sell stocks, so why should bond transactions be any different? (Kudos to the discounters Qtrade and Scotia iTRADE, which already practise transparent pricing for bonds.) Visible bond commissions should lower trading costs and result in more competitive bond pricing for consumers.
9. Credit-card issuers will, as part of the credit-card approval process, require all applicants to pass a test to demonstrate that they know: the interest rate charged if an outstanding balance is not fully paid before the payment due date; how interest is calculated; and the time required and the total cost to pay off a sample outstanding balance if only the minimum monthly payment is made. This step should help reverse the worrying trend in this country of rising household debt.
10. Financial institutions will stop levying egregious "service" fees. Here's just one example: the HorizonPlus Prepaid Financial MasterCard (maximum $5,000) offered by Peoples Trust has a sign-up fee of $19.95 and charges a monthly maintenance fee of $4.95. Essentially, you pay the company to take your money, and then continue to pay them every month as long they have your money. What an incredibly bad deal!