cover image: A major setback for retirement savings : Changing how financial advisers are compensated could hurt less-than-wealthy investors most

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A major setback for retirement savings : Changing how financial advisers are compensated could hurt less-than-wealthy investors most

30 Mar 2016

We suggest that the answer resides in the economic nature of financial advice as a “credence good”4 and the interaction of the intrinsic characteristics of the service provided with the idiosyncrasies of individual investors. [...] The consequence of a prohibition on embedded and trailing fees is likely to reduce by 20 to 30 per cent the number of individual investors that obtain or will seek professional financial advice.53 Such a contraction is two to three times the size of the enlargement of the “advised” population postulated for the simulations; it is not unreasonable to suggest that the shrinking of the advised popula [...] Trust is an essential determinant of the quality of a relationship;54 it generates higher levels of co-operation between a supplier and its customers, leads a supplier to exert more efforts on behalf of his clients, enhances the credibility of the supplier, generates buy-in of recommendations and it shifts the focus of the relationship from the short to the long term.55 Trust is particularly impor [...] The duty of loyalty encompasses the disclosure of the terms and conditions of the relationship and material conflicts of interest and their resolution in a manner consistent with the interest of the customer. [...] The resulting contraction of the number of financial advisers in the retail banking channel during the months preceding the entry into effect of the RDR rule was about 45 per cent of the total adviser complement.
retirement income investment advisor-client relationships investment advisors

Authors

Lortie, Pierre

Pages
40
Published in
Ottawa, Ontario