Self-employed and small business insurance provider Edge Benefits is sounding the alarm on a potential embedded commissions ban in the Canadian financial services sector that could creep into all lines of insurance.
Edge Benefits’ announcement comes as the Canadian Securities Administrators, the provincial and territorial securities regulatory organization, is almost halfway through a 150 day public consultation process concerning the banning of all commissions built into the cost of investment advice.
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President and CEO of Edge Benefits, Neil Paton argued separating these service commissions from the product would create high, upfront costs for any financial advice including insurance.
Many can’t afford paying the total commission all at once and those who can’t are most in need of said insurance advice, Paton argued.
Conversely, the Canadian Securities Administrators argue charging all financial advice fees separately from the actual products prevents incentivizing the selling of products that clients don’t need, just for the extra cash. Paton, however, said there’s no proof that problem exists to such an extent in Canada that an outright ban needs implementing.
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Brokers should encourage their clients to tell their MPs the ban “isn’t in their best interest,” Paton said - because if only brokers advocate against fee-bans, governments will think the industry is only looking out for itself.
“If the ban does come into the insurance industry it will basically be on all insurance products which would have a significantly adverse impact on insurance advice. There’s even more need to make sure every Canadian has access to quality insurance advice regardless of whether they’re low, middle income or high income,” Paton said.
“If you start monkeying with the system that exists today, forcing upfront solutions and limiting options for engagement then the people who are going to suffer are the people who can’t afford to pay for advice - and in many cases they are the ones who need it the most.”
Australia has enacted a similar ban to the one being proposed in Canada now, and Paton said that resulted in financial advice becoming a luxury only available to the rich.
Addressing the Canadian Securities Administrators’ concerns, enhancing transparency and maintaining embedded fees aren’t mutually exclusive, argued Paton.
“We need a little more clear evidence that this problem exists in Canada today. I have not seen any information that indicates we have a broken system or a problematic system,” Paton said.
“I don’t have a problem if we need further disclosure, that’s not the end of the world, but to completely eliminate it (embedded commissions) and force a completely different model of service to be negotiated between a client and an advisor makes no sense.”
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