Some countries are moving towards a fee-based compensation arrangement rather than commissions based in Investment Executive.. Obviously, there is an inherent conflict of interest when advisors are paid commission and trailer fees on the investment products they sell. With fee-based, you get more objectivity, transparency and professionalism. Countries like Britain, Australia and the Netherlands have already banned commissions, and Canada may follow next according to this article by
With the abolishment of commissions, this type of arrangement can put an upper limit on earnings potential, which has induced many to leave the industry:
Indeed, in some countries, the ban on commissions has caused a substantial number of advisors to exit the business. Britain, for instance, has experienced an approximately 30% reduction in the number of financial advisors, due to the ban on commissions, along with new rules requiring advisors to attain higher educational qualifications. Another 20% to 30% are expected to leave the business by the end of the year.
However, there are some upsides:
He pointed out that in Australia, where new regulations banning commissions are set to take effect in July, roughly half of advisors have already moved to fee-based compensation models, and many are finding that their revenues have gone up as a result.
Perhaps because some advisors have left, leaving more clients for the rest who`s stayed or clients are more inclined to trust their advisors in a fee-based arrangement? I`m just speculating.
For advisors, I can imagine how fee-based would be beneficial to someone who is just starting out in, and much more difficult for someone who is comfortable with commissions with their book of clients.
I`m not in, but I was hoping if WSO can share their experience and opinion on this. Can it ever happen in the US? Is fee-based better if you are/were in ?
See my other WSO blog posts