I’m always happy when somebody agrees with me:
The report, released Thursday by the School of Public Policy at the University of Calgary1 and authored by Henri-Paul Rousseau, examines the option of banning embedded sales commissions for Canadian financial advisers and the broader, public-interest issues arising from such a ban.
…
According to Mr. Rousseau, the ban on these commissions would create a number of public policy issues. Firstly, it would likely create an advice gap in Canada, due to households being averse to paying up front for an advice fee. Secondly, it will likely cause a loss of choice for Canadians who have varying needs and preferences. The report says that smaller and independent product manufacturers and distributors would be squeezed out, creating a market concentration in the hands of the bigger financial-advice players, as well as a loss in pricing transparency for clients.
The full report is titled WHY BANNING EMBEDDED SALES COMMISSIONS IS A PUBLIC POLICY ISSUE: A commentary adapted from notes for the concluding panel of “The New Paradigm of Financial Advice” conference, held in Toronto on March 31, 2017:
The U.K. provides an example which should not be followed. Regulators there have banned embedded commissions, forcing clients to pay directly for financial advice. The result is that modest-income clients have decided not to seek financial advice, even though that decision will likely negatively affect their portfolios.
The dangers of this “advice gap” are being downplayed by those who believe that robo-advisors and banks can fill the need instead. In fact, robo-advisors and banks are mostly not equipped to step into the gamma role of coaching their clients.
A ban would also mean less choice in the market for a service that needs to be competitive and innovative to serve the broad spectrum of clients’ circumstances, risk appetites and needs. In addition, smaller and independent product manufacturers and distributors would be squeezed out, creating a market concentration in the hands of
the bigger players.
The second paragraph quoted above is incomplete, it seems to me, with respect to the role of robo-advisors. That channel seems best suited for ‘those who know not and know that they know not’. Those are the guys who earnestly seek out an advisor and are greatly impressed when he repeats that morning’s headlines from the Wall Street Journal, together with commentary on what “Janet” and “Stephen” are going to do with “interest rates” in the next six months, but they’re not really all that interested. ‘Get me invested and don’t bother me’ is their motto and a robo-advisor can scratch that itch really well.
The problem is with ‘those who know not and know not that they know not’. These are the people with a profound disinterest in financial markets. They’re the people who, unless they happen to know somebody in the business, will go to the bank and ask for something “safe”, so the friendly banker will put them into a grossly unsuitable portfolio of GICs that are immensely profitable for the bank. What we should want, as a matter of public policy, is for them to know that Charlie down at the club ‘does something with stocks and bonds’, so they go to Charlie. I will agree that Charlie is probably not the greatest advisor around, but he knows more than a bank teller and has access to a wider range of investments. Sure, he takes his half-point cut on the deal. It’s worth it. Not because his advice, considered objectively, is so wonderful, but because his advice has given his new clients confidence and because – in most, although certainly not all, cases – the portfolio his clients end up with is reasonable. Not great, not particularly cheap, but reasonable.
Banks? My attention was drawn recently to the RBC Managed Payout Solution. My God. How can anybody offer up that marketing strategy without blushing? I just about had a coronary.
So maybe the economy’s not so good:
Employers created an average of 11,000 new jobs a month for the first five months of the year, according to Statistics Canada’s Survey of Employment, Payrolls and Hours (SEPH) for May, released on Thursday.
The weak jobs data suggest that “paid employment creation so far this year is the worst since the 2009 recession,” said Krishen Rangasamy, senior economist with National Bank of Canada.
The payroll survey results stand in sharp contrast to Statscan’s other labour report, the Labour Force Survey (LFS), which has exceeded expectations for months and paints a much rosier picture of the country’s job market. The difference in the numbers reported by the two employment surveys is not unusual because the SEPH report is based on payroll data from Canada Revenue Agency, while the LFS relies on people providing information about their wages and job status to data collectors. The SEPH numbers are considered more reliable; the labour force survey is volatile and not as dependable given that it has a huge margin of error.
LIBOR is on its way out:
The U.K. Financial Conduct Authority will phase out the key interest-rate indicator by the end of 2021 after it became clear there wasn’t enough meaningful data to sustain the benchmark that underpins more than $350 trillion in securities, Andrew Bailey, the head of the regulator, said in a speech Thursday at Bloomberg’s London office.
…
But the 58-year-old Bailey said the market supporting Libor — where banks provide each other with unsecured lending — was no longer “sufficiently active” to determine a reliable rate and alternatives must be found. For one currency and lending period there were only 15 transactions in 2016, he said.
…
The FCA only started regulating Libor in 2013, the same year legislation was passed making it a criminal offense to take any misleading action in relation to financial benchmarks.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.5083 % | 2,406.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.5083 % | 4,416.3 |
| Floater | 3.60 % | 3.63 % | 127,190 | 18.23 | 3 | -0.5083 % | 2,545.1 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0864 % | 3,057.5 |
| SplitShare | 4.71 % | 4.43 % | 52,317 | 3.78 | 5 | 0.0864 % | 3,651.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0864 % | 2,848.9 |
| Perpetual-Premium | 5.39 % | 4.71 % | 63,188 | 6.09 | 21 | -0.0278 % | 2,777.2 |
| Perpetual-Discount | 5.28 % | 5.25 % | 80,086 | 14.97 | 15 | 0.0607 % | 2,926.7 |
| FixedReset | 4.32 % | 4.32 % | 179,116 | 6.38 | 98 | 0.1529 % | 2,412.4 |
| Deemed-Retractible | 5.07 % | 5.42 % | 118,276 | 6.12 | 30 | -0.0595 % | 2,863.0 |
| FloatingReset | 2.54 % | 2.89 % | 42,339 | 4.27 | 10 | -0.1573 % | 2,641.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| VNR.PR.A | FixedReset | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-07-28 Maturity Price : 21.74 Evaluated at bid price : 22.15 Bid-YTW : 4.92 % |
| SLF.PR.G | FixedReset | 1.14 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.75 Bid-YTW : 7.91 % |
| MFC.PR.K | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.99 Bid-YTW : 5.86 % |
| MFC.PR.H | FixedReset | 1.38 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 4.78 % |
| IAG.PR.G | FixedReset | 1.45 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 5.29 % |
| MFC.PR.J | FixedReset | 1.68 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.24 Bid-YTW : 4.72 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.Z | FixedReset | 269,117 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-07-28 Maturity Price : 21.73 Evaluated at bid price : 22.19 Bid-YTW : 4.22 % |
| TRP.PR.D | FixedReset | 166,736 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-07-28 Maturity Price : 22.27 Evaluated at bid price : 22.61 Bid-YTW : 4.34 % |
| RY.PR.L | FixedReset | 128,900 | YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 3.54 % |
| RY.PR.J | FixedReset | 117,621 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-07-28 Maturity Price : 22.93 Evaluated at bid price : 23.86 Bid-YTW : 4.32 % |
| NA.PR.X | FixedReset | 111,178 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-05-15 Maturity Price : 25.00 Evaluated at bid price : 26.74 Bid-YTW : 3.56 % |
| RY.PR.Q | FixedReset | 109,410 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-05-24 Maturity Price : 25.00 Evaluated at bid price : 26.64 Bid-YTW : 3.55 % |
| There were 22 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| NA.PR.W | FixedReset | Quote: 21.64 – 22.05 Spot Rate : 0.4100 Average : 0.2733 YTW SCENARIO |
| BAM.PF.I | FixedReset | Quote: 25.75 – 26.00 Spot Rate : 0.2500 Average : 0.1441 YTW SCENARIO |
| VNR.PR.A | FixedReset | Quote: 22.15 – 22.47 Spot Rate : 0.3200 Average : 0.2318 YTW SCENARIO |
| BAM.PF.F | FixedReset | Quote: 23.87 – 24.27 Spot Rate : 0.4000 Average : 0.3172 YTW SCENARIO |
| POW.PR.G | Perpetual-Premium | Quote: 25.24 – 25.49 Spot Rate : 0.2500 Average : 0.1716 YTW SCENARIO |
| GWO.PR.N | FixedReset | Quote: 17.23 – 17.60 Spot Rate : 0.3700 Average : 0.2926 YTW SCENARIO |