Delays and friction when moving accounts has long been a source of frustration in the industry.Eoneren/iStockPhoto / Getty Images
The federal budget tabled earlier this month contained a proposal that could be a salve for angry financial services customers: a shakeup of the account transfer process.
The government plans to introduce draft regulations by next spring that would prohibit transfer fees for investment and registered accounts, which it says average $150 per account. The new rules would also require the timely transfer of accounts and clear information to keep customers informed of what’s happening.
The proposal is part of a broader push to increase competitiveness in Canada’s financial markets. The government also hopes it will make it easier for Canadians to switch institutions when they’re unhappy with their current advisor.
Delays and friction when moving accounts have long been sources of frustration in the industry.
Suzanne Lasrado, vice-president, member services and innovation at the Canadian Investment Regulatory Organization (CIRO), says account transfers are consistently a top complaint from investors and members. And it’s a growing problem as the number of self-directed investment accounts increases.
The self-regulatory organization published a white paper in July addressing the problem and proposing a 10-day settlement period for account transfers, among other measures. Public comment on the proposals closed last month.
Ms. Lasrado says CIRO will survey investment firms to evaluate the impacts of the changes proposed in the budget.
Jean-Paul Bureaud, executive director of investor advocacy organization FAIR Canada, is cautiously optimistic about the proposal in the federal budget.
“From our perspective, this is fundamentally about improving the system for the benefit of consumers and reducing friction,” he says.
Account transfers make up around 7 per cent of the complaints his organization receives from consumers on the investment side.
Jason Pereira, partner and senior financial planner at Woodgate Financial, says the change would likely be a net benefit for consumers, especially those with small accounts for whom the transfer fees sting most.
However, in practice, paying the transfer fee on the consumer’s behalf is a tiny barrier to entry for advisors eager to win new business, he says. “The reality is that it was very common practice for the advisor taking over the business to cover that fee when they were earning the business.”
Mr. Bureaud is surprised the government went as far as fee prohibition.
“At the end of the day, someone’s going to have to pay for the work involved,” he says.
Now, outgoing institutions will have to cover the cost of completing the paperwork and closing out the account.
“I think what will happen is the institution that’s doing the work is just going to try to recover their costs somewhere else,” he says.
The Canadian Bankers Association is more concerned about the proposal. Banks in Canada have been “clear and transparent about the fees charged,” says Ethan Teclu, a spokesperson for the CBA.
“It is important that the government doesn’t risk undermining this high level of customer service through these proposed changes,” he adds.
What to look for in draft legislation
With the budget now approved, all eyes will be on the regulatory process to determine what form the proposals take.
Ms. Lasrado of CIRO would like to see more clarity around account transfer rules in the legislation.
“Ideally, it would include clear requirements, such as defined time limits for completing transfers and mandatory use of electronic or technology-based solutions that align with CIRO standards,” she says.
The CBA supports the idea cautiously, with potential caveats such as exemptions during periods of peak activity, it said in its response to CIRO’s request for comment.
Should there be punitive measures for those who don’t meet transfer deadlines effectively? Ms. Lasrado maintains that most institutions don’t lag on purpose. It’s a systemic problem, she says, due to inefficient processes and infrastructure.
However, Mr. Pereira would like to see meaningful penalties for bad actors.
“What I would like to see is, if there’s a legitimate case in which the document was confirmed received, and it was valid, and it goes beyond the period of time, that you were basically fined a multiple of the revenue,” he says. “It should hurt.”