“These are opaque, high-fee products that many of the distributors have a hand in putting together,” White says. “People are moving towards a fee model and that’s where things should be going, but even that’s getting co-opted.”
While White can’t say he’s seen an advisor’s job threatened by a lack of distribution, he notes the examples of recent hires he’s brought on from bank-owned firms. He claims these hires had been given around 600 clients to serve and if he didn’t meet a phone call, meeting, and new asset target every week, he would have no administrative support for his clients, which would effectively make his job impossible. Put in that situation, White argues that advisor is incentivized to work against clients’ best interest to ensure these assets come into the firm.
Know your product (KYP) regulations play a key role in White’s vision of these conflicts. Despite the positive intent of these regulations, the sheer number and complexity of the products available to Canadian advisors now makes meeting a KYP standard for the entire shelf functionally impossible. White says that major institutions, chiefly the banks, will only let their own product on their shelves and use KYP to cover themselves. If they can only recommend products they know, then they argue they can only truly know their own products.
Despite all these forces which he sees setting up conflicts of interest, White retains his faith in advisors. He argues that many advisors continue to put client interest ahead of the incentive structures they are surrounded by. He believes the roots of these conflicts run to the industry’s history in distribution and that by pushing against the tide advisors can help make that more fundamental change.
“There are fantastic people out there doing fantastic work in literally every institution on the street, but many of them are doing it despite their environment, not because of it. The environments are not conducive to doing the right thing most of the time,” White says. “When you watch the banks buy the brokers, I think we’re probably in the direction right now where the manufacturers own more of the distribution and are acquiring more of the distribution as we go. I think that’s creating more conflicts that are more persistent today.”
