A move by British regulators to ban financial advisers from accepting commissions for selling mutual funds and other products after 2012 is likely to cause lot of soul searching elsewhere, including in Canada.
The Financial Services Authority published new rules last Friday, saying the move is needed to "help restore confidence in the market…Firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product."
The change means that investors in that country will have to negotiate a fee for advice directly with their adviser who won't have an incentive to sell one producer over another, notes David O'Leary, an analyst at Morningstar Canada: "It's as if the entire UK fund industry will go F-class." See Morningstar notebook.
For those not familiar with F-class, its a series of funds developed in Canada for fee-based accounts where advisers charge a transparent fee not embedded in the management expense ratio (MER).
Vikash Jain, president of archerETF Portfolio Management, says Canadian investors would benefit from the same rules. See blog.
The debate is only beginning.