Question

Explain the legal and ethical issues surrounding the payment of trailing commissions to finance and mortgage brokers and advisers.
(Explain the legal environment including disclosure and compliance covering the relationship between ethics and regulatory requirements

Answer 1

LEGAL AND ETHICAL ISSUES :

ARGUMENTS IN FAVOUR:

1. Makes possible for the professionals to make it a career

2. Makes the product reach deeper

3. Ensures Investors invested in quality products

4. Revocation might lead to "Advise Gap"

5. "Bill for Advise" might make it expensive and many may not be able to afford

6. Studies conducted by PWC in 2017 in Canada show that ban would result in individual Canadian investors accumulating, on average, $240,000 less in retirement savings than those with access to advice.

7. Royal Commision recommendations too were revised in Australia keeping in mind the impact of ban on the model.

8. For a dealer to perform the fee calculation and deductions at an individual account level will be tedious and complex and hence limiting same to larger accounts.

9. Trail commision model ensures cross subsidization and hence smaller Investors too get benefitted which other wise would get left out for bigger accounts.

ARGUMENTS IN AGAINST:

1. Many investors are not aware these fees are paid out to an adviser when purchasing a product, which could create a conflict of interest when it comes to advisers recommending which funds their client should buy.

2. Lower investment fees, greater product access and enhanced fee transparency for the Customers.

3. Clients have the right to expect un-conflicted advice that puts their interests first.

4. Better competetive enviornment for Industry without conflicting interests.

5. Investors must be able to understand the true costs of their investments, the costs of buying and holding their investments, and the cost of the advice they receive.