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A Major Setback for Retirement Savings: Changing how Financial Advisers are Compensated could Hurt Less-than-Wealthy Investors Most

If regulators were to simply outright prohibit Canadians with low and middle incomes
from seeking financial advice, it would obviously constitute a massive setback for
individual wealth accumulation and, ultimately, for the economy. In Canada, after all,
the well-being of a large proportion of retirees relies heavily on their voluntary personal
and private wealth accumulation, in part due to the shrinking proportion of Canadian
employees covered by a defined-benefit pension plan. As it is, between a quarter and
a third of households of all income levels not covered by a defined-benefit plan are not
set up to retire comfortably. And yet, currently, regulators are entertaining a change to
the financial services industry that will almost certainly have the net effect of keeping
the vast majority of Canadians from accessing financial advice. It is not quite a ban, but
given the effect it will have, it almost could be.
The role of financial advice is pivotal in helping people prepare for retirement. Evidence
shows that the average individual’s knowledge of basic financial products and concepts
is quite limited. Research indicates that Canadian households using a financial adviser
to assist in saving and investment matters and plan their retirement accumulated 1.58
times as much wealth as did non-advised households after four to six years; after 15
years, that had increased to 2.73 times. That has an effect on the rest society, too, since
wealthier retirees enjoy a better quality of life, are less burdensome on government
income supplements and contribute more to the economy.

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