U.K. trailer fee ban a disaster for some, and a huge opportunity for others.
'I really notice coming here today, the nervousness that is in the room. I can sense the nervousness."
Ian Trevers, head of U.K. retail with Invesco Perpetual (one of the largest independent mutual fund companies in that country), was addressing hundreds of Canadian mutual fund representatives, including investment advisers. IAs have good reason to feel a little on edge because Canadian securities regulators are mulling whether to ban trailing commissions for mutual fund sales, which is their chief source of income. Mr. Trevers was speaking at the 2014 Advocis Regulatory Affairs Symposium, held in Toronto on Wednesday.
Mr. Trevers has a good grasp of how a ban on trailer fees might impact Canada, because Britain has been there and done that. Less than two years ago, a ban on trailing commissions took effect there, and the industry has been transitioning to a fee-based model, where advisers are instead paid a percentage of an entire portfolio of investments under management. Mr. Trevers says Invesco is managing the transition well. Others, though, seem to be struggling.
Garry Heath, former director general of the Independent Financial Advisors (IFA) Association and now a consultant, argued that Britain's decision to abolish mutual fund trailer fees and move to a fee-based system for advisers has been a disaster. He said that many clients are unwilling to pay upfront for advice, and are ditching their advisers. "People who need the advice most are in the least position to pay for it," he argued. And that has led to thousands of advisers, who previously had hundreds of clients on their books, fleeing the business. Mr. Heath's message to Canadian regulators considering banning trailer fees: Don't do it.
Rod Bryson, assistant director, corporate strategy, financial services with PricewaterhouseCoopers in the United Kingdom, spoke after Mr. Heath, and he systematically tore his thesis asunder, quietly questioning his data, and making a compelling argument, that far from representing the beginning of the end, the ban on trailer fees in Britain is a huge opportunity for the mutual fund industry to evolve and get better.
"People will pay for advice if you change your value proposition. If you provide really good service and execute really well they will pay. If you are an adviser with an entrepreneurial spirit, that wants to do the right thing for the customer, who wants to run an efficient business, this is a great time."
Mr. Bryson singled out wealth management firm St. James's Place as a company that has adapted well to Britain's fee-based environment.
"They have very clear propositions and they present them very well. Their advisers consistently execute well."
Advisers have to up their game, he argued, because consumers in 2014 are much smarter and better educated than a decade ago. The Internet has empowered consumers, but so far most advisers haven't figured out how to make the Web work for them.
The power, he reminded the advisers present, rests with them; they are the closest to the consumer. The business is there for the taking – if advisers are bold enough to step up.
"There is not many times when a market is truly evolving." This is one of those times in Britain. We may well be headed down that road soon in Canada, too.
Niall McGee