The Canadian financial advice industry has some unlikely competition: the r/PersonalFinanceCanada subreddit.
Most of Canadian media have covered the now famous r/WallStreetBets subreddit down to their generous use of the rocket ship emojis. The r/PersonalFinanceCanada subreddit, in contrast, is a bit tamer. The most used word in this subreddit – believe it or not – is “frugally.” Its subscriber growth, however, has been rocketing higher in its own right. It’s expected to have more than one million Canadians members by the end of 2021.
It’s not surprising that many Canadians would view Reddit as an alternative to approaching their bank for advice. The Canadian financial advice industry is a mess.
Some industry context
If someone in the United States was looking for financial advice, they would go to one of the 30,000-plus registered investment advisers (RIAs) south of the border. RIAs are independent businesses. They are also held to a “fiduciary standard.” This means they are legally obligated to act in their clients’ best interests.
It doesn’t work like that in Canada. If a Canadian was in the same position, they would be stuck with one of approximately 600,000 bank employees trying to meet their sales quotas. These salespeople are merely held to a “suitability standard” – otherwise known as the “good enough” standard.
What makes it even worse is that you wouldn’t know that they are salespeople – in many cases earning 100 per cent of their income through commissions – because they call themselves advisers or planners. These titles are misleading and signal a level of credibility that, for many of the salespeople using them, might be unearned and unwarranted.
Salesperson? Or adviser?
The provincial governments are trying to sort this out. Ontario – which has the highest number of financial professionals in the country – passed the Financial Professionals Title Protection Act in 2019, following Quebec’s lead. The act would prohibit salespeople from using “adviser” or “planner” in their titles, unless they have advanced designations.
But there’s a tug-of-war unfolding in the public consultation process before any rules actually come into effect. Some say the proposed rules don’t go far enough because they don’t impose a fiduciary standard. But other advocacy groups representing salespeople, like the Canadian Life and Health Insurance Association Inc. (CLHIA) and Investment Industry Association of Canada (IIAC) say they go too far – that current sales training is sufficient to call themselves planners and advisers.
Money is too important
The problem goes beyond titles, however. The bigger problem is alignment of interests. Selling and advising are two very different things. A 2018 study by FP Canada (formerly the Financial Planning Standards Council) found that money was the biggest stress Canadians faced. More than their personal health. More than work. More than relationships. More than half of Canadians feel embarrassed about lacking control over their financial situation. Putting people in front of a financial salesperson when they need financial help is like putting them in front of a pharmaceutical sales rep when they need health advice. It doesn’t make sense.
The average age of a financial adviser in Canada is above 50. Most of the focus on advice and planning happens around the subject of retirement. And most wealth is controlled by the baby boomer generation. So these, by default, become the primary subjects of any regulatory lens, and the focus of banks themselves. It’s an old industry trying to protect an old sales commission business model that has existed for the last century.
But millennials aren’t sweating it
Younger people are far more distrusting of institutions. They value transparency, and would rather rely on crowdsourced opinions than talk to a salesperson. They also happen to be a large contingent of r/PersonalFinanceCanada. In the subreddit, two companies mentioned most frequently than any other are Questrade and Wealthsimple.
You know what these two have in common? They are the only two companies in Canada offering zero-commission investing. And there are many other fintech apps that allow consumers to invest, get a loan, or buy insurance. There’s not much left for a financial salesperson to sell, except for good advice.
While the equity markets are hitting new record highs every month, and interest rates are at all-time lows, it’s easy enough to manage without advice, at least in theory. But one wonders whether the crowdsourced financial opinions of anonymous Reddit accounts are good enough to withstand another economic shock. It’s even more worrying to think that some are on r/WallStreetBets rather than with our frugal friends at r/PersonalFinanceCanada.
Either way, until the government, regulators, and Canadian banks start getting more ambitious about doing right by consumers, Reddit is where some young investors are turning to for financial advice.
Ali Shan Artani is an independent investment planner in the process of getting the CFP designation. He has worked in investment banking, at the World Bank, and in the cryptocurrency industry.