As long as there are consumers of products, there will be manufacturers of products. The banking model has been redesigned to manage many transactions without human intervention and risk for the issuing institution. One dollar here and another, multiplied by millions of transactions, is billions at the end of the year. Simple but effective.
Consulting services seem to contradict this model since it requires time and involves people. It also has the disadvantage of creating risks of complaints and lawsuits. You will not be surprised to hear the AMF trumpet that the sale of insurance without advice on the Internet is imminent. Despite the flagrant contradiction of this option with the fully justified ethical obligations regarding consumer protection, advisers must respect when they help their clients choose a financial product.
Ongoing pressure will continue to be put on regulators to end the need for advice before underwriting financial products. Financial institutions can then flood the market with mass products to subscribe to on the Internet without advice and human intervention.
The hunt for licensed financial advisors regarding the sale of financial products may soon disappear. Independent financial advisors and proprietary agent networks will have to revise their model and start charging fees for their consulting services, even if they are currently receiving a commission. When she disappears, they will at least have the honorarium.
Independent financial advisors risk creating insurance products that are accessible via the Internet without advice. The Financial Services Professionals Council (FPSDC), in partnership with other national associations of financial advisors, should design the products, retain full ownership and control, and assume the risk behind the scenes by an insurer chosen from time to time by submissions.
Independent financial advisors will direct their customers to their products rather than lose them to financial institutions.
Transparency
The financial services sector is so powerful that it alone can trigger a global disaster. The crisis then provoked was so fraught with consequences for humanity that it became fully justified to demand more transparency from the actors of this industry. This movement seems irreversible. However, financial institutions were created based on the famous banking secrecy. The transparency demanded by the world’s population requires them to go against their very essence.
Independent financial advisors who increase their level of transparency beyond the genetic code of financial institutions will improve their chances of differentiating themselves from the more knowledgeable segment of the population. It will be beneficial for the CDPSF to convene a few cohorts of financial advisors to collectively develop a unified code of practice that promotes transparency for its members, who can use it for marketing purposes.
Framework
Repeated scandals have legitimized, more than ever, the desire to strengthen management to increase its effectiveness. The collective awareness of human greed and corruptibility has disgusted us all. Concrete actions had to be taken by the regulators, and that was done, and I welcome that.
Of all the current distribution networks, only one general agent imposes practically no ethical framework on its advisers. For the most part, general agents do not share the professional responsibility stemming from the actions of counselors who are not attached to them. There is no doubt that the general agent channel is of the greatest concern to regulators.
The guidance of the industry should continue to intensify—counselors who continue to resist this irreversible movement risk being brutally eliminated. General agents seem doomed to become as responsible as national accounts or exclusive agent networks for the activities of advisers who place business through them.
Complaints and Prosecutions
Advisers in exclusive agent networks who believe they are exempt from this obligation should also question themselves. The basic principle is simple: a financial advisor cannot delegate to others the responsibilities incumbent on him under the laws that govern him. The word “other” obviously includes the insurer or the firm to which you are attached as well as your assistant.
Finally, I do not even want to know the percentage of licensed advisers who have not yet drafted the regulations required by the regulations. And among those who wrote them, how many have put in place procedures to respect the content? The number of complaints and lawsuits will increase at an unsustainable pace in the coming years, leading to escalating professional liability insurance costs.
Commissions and Profitability
Financial institutions manufacture their products and distribute them through their networks. They, therefore, reap both the profits from the product and those from the distribution. They also distribute the products of their competitors in some of their networks.
The disturbing comments in this article published on Advisor.ca regarding sales quotas that some employers impose on their staff suggest to us that they could favor their homemade products in several ways, to the detriment of the consumer’s supreme interest.
This practice would allow them to sacrifice the portion of income related to “distribution temporarily.” Still, it would push their advisers to violate the code of ethics of their profession with impunity. To the extent that this testimony reflects reality, successful employees would be rewarded with bonuses, while others would be paid less, demoted, or fired.
Note that financial institutions also have the luxury of reducing their unit costs by leveraging technology, structure, control, and volume. Like Saudi Arabia, which keeps the price of oil incredibly low voluntarily, they can use their almost unlimited financial capacity to sacrifice some of the medium-term profitability of a coveted sector and eventually take control of it.
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