Complex financial rules price out people who need advice most

As Canadians focus on the harmful economic effects of tariffs, taxes and trade, a quieter drag on our productivity hides in plain sight: how we regulate financial services.

Regulation has expanded all across the financial sector. Rules are obviously necessary. They protect consumers, ensure stability and build trust. But rules accumulate, forming a dense regulatory thicket unless constantly pruned. Each measure may be sensible on its own but piling one on top of another can become a problem.

It’s a problem regulatory fragmentation only worsens. National firms face multiple, non-interoperable rules for identical operational risks. For instance, a single cyberattack triggers separate reporting regimes: OSFI’s B-13, CIRO’s incident reporting and the AMF’s new security-incident regulation. (That’s the federal Office of the Superintendent of Financial Institutions, the industry’s Canadian Investment Regulatory Organization and Quebec’s Autorité des marchés financières.) A firm operating in Quebec thus faces three separate timelines, thresholds and portals. Similarly, our largest federally regulated financial institutions prepare substantively overlapping climate risk materials for different agencies.

More than two dozen authorities touch the same customer journey from banking to insurance to securities yet no one tracks the total weight of regulation on households or the firms that serve them. When rules make advice unnecessarily costly or convoluted, households save less, insure less and invest less, shrinking the pool of patient capital. Unpruned regulations shrink the long-term savings that fund business investment and, ultimately, productivity growth.

The people priced out first are those who most need help. Research commissioned by the Investor Advisory Panel of the Ontario Securities Commission finds that a majority of Canadian investors do receive planning advice. That good news is tempered by the finding that: “Nearly half (49 per cent) of investors with portfolios under $50,000 reported no education from their adviser on financial concepts, and 40 per cent reported no advice on planning for financial goals.”

The result, as I describe in my recent C.D. Howe Institute report, is a widening “advice gap,” where rising costs and fragmented oversight leave ordinary Canadians without affordable guidance. In the vacuum, the unadvised turn to self-help. Do-it-yourself platforms work well for people with the time and temperament. But many others are nudged instead by social feeds and miss basics like using their TFSA or RRSP room.

A steady relationship with a financial professional helps families budget, insure and invest in ways that survive market noise and the next big thing online. Advice matters because it shapes behaviour and helps overcome inertia. In a 2016 study two Quebec economists found that Canadian households who receive advice over time (i.e., 15+ years) accumulate 2.73 times more financial assets than unadvised households, other things equal. People getting advice are more likely to contribute to RRSPs and TFSAs, to plan for retirement and to buy insurance that protects their families. When millions of Canadians sit on the sidelines, the entire economy suffers from weaker financial resilience and lower national savings, leading to lower capital formation and slower growth.

Regulators operate under asymmetric incentives: the risks of under-enforcement are highly visible, while the costs of reduced access are diffuse and delayed. We need to ensure that material changes to long-standing practices proceed only when there is convincing evidence of harm and persuasive quantitative analysis of the likely effects on participation and cost, all followed by post-implementation review. Putting every major rule on a sunset clock would also help keep consumer protection strong while avoiding unintended exclusion.

For its part, cost-benefit analyses should be transparent and include effects on access and affordability. The discipline of burden reduction, long applied in provincial ministries, should extend to financial regulators and self-regulating organizations. Regulators should maintain a standing public process to identify and simplify or eliminate outdated or overlapping rules. And they should co-ordinate across jurisdictions through mutual recognition, so firms aren’t paying more than once to do the same safe thing.

Removing unnecessary regulatory drag isn’t weaker oversight; it’s smarter, more inclusive, growth-oriented regulation that is common practice in business. Household productivity rises when more Canadians can work, save and invest with confidence. That’s the kind of productivity problem Canada can and should fix.

Gary Edwards is a co-founder and principal at Golfdale Consulting.