A group spokesperson blames the lack of a best-interest standard on Canada’s ‘dysfunctional’ regulatory system
In the wake of allegations that banks pushing unsuitable financial products on their clients, investor protection groups are saying that it’s high time that regulators implement a statutory best-interest standard to protect investors.
“Right now, the financial industry is subject to a suitability standard, which is not a very high standard,” Ermanno Pascutto, executive director of the Canadian Foundation for Advancement of Investor Rights (FAIR Canada), told CBC News.
“[F]or instance, an investment product may be suitable for a client — in that it's medium risk — but it may have very high fees,” he said. “So a financial advisor is probably not giving you the best advice, and doesn't have to.”
A best-interest standard would compel financial institutions to provide clients with better advice and service. Australia and the UK already have such a standard, and the EU will implement its own by January.
In Canada, regulators have been considering shifting the financial system from a sales-based focus to a purely investor-first paradigm for more than 10 years. A 2004 consultation paper from the OSC included a proposal to explore the merit of introducing a legal requirement for financial advisors to act in a client’s best interest. Since 2012, the CSA has conducted two national consultations and an industry roundtable discussing best-interest standards.
The standard is not yet fully defined, and no provincial regulator has fully committed to it. The OSC has expressed strong support for it, and so has Ontario Finance Minister Charles Sousa. However, regulators in Quebec, Alberta, and BC have resisted the call for a best-interest standard; they have cited various reasons, including the suggestion that existing regulations should already provide sufficient protection.
“We have a somewhat dysfunctional regulatory system,” Pascutto said. “We have 13 securities regulators who have to agree on an initiative, and … You've got all the major financial institutions — well over 100,000 people employed in selling these products who are generally going to oppose changes that are detrimental to their income.”
Not all investor advocates are in favour of this measure. Stan Buell, who heads the Small Investor Protection Association (SIPA), is concerned that the standard is still not adequately fleshed out, which could lead to misinterpretation and a “continuation of deception.”
He also noted the two-year window for consumers to file a complaint after realizing they’ve been victimized, saying that it’s too short. “Victims of life-altering [financial] loss cannot recover, find out what happened to them and determine a course of action within a two-year limitation period,” he said.
Do you have a strong opinion on this industry debate? If you'd like to write a guest column on the topic, pro or con, or know someone else who might, contact Joe Rosengarten at Wealth Professional: [email protected].
For more of Wealth Professional's latest industry news, click here.
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“Right now, the financial industry is subject to a suitability standard, which is not a very high standard,” Ermanno Pascutto, executive director of the Canadian Foundation for Advancement of Investor Rights (FAIR Canada), told CBC News.
“[F]or instance, an investment product may be suitable for a client — in that it's medium risk — but it may have very high fees,” he said. “So a financial advisor is probably not giving you the best advice, and doesn't have to.”
A best-interest standard would compel financial institutions to provide clients with better advice and service. Australia and the UK already have such a standard, and the EU will implement its own by January.
In Canada, regulators have been considering shifting the financial system from a sales-based focus to a purely investor-first paradigm for more than 10 years. A 2004 consultation paper from the OSC included a proposal to explore the merit of introducing a legal requirement for financial advisors to act in a client’s best interest. Since 2012, the CSA has conducted two national consultations and an industry roundtable discussing best-interest standards.
The standard is not yet fully defined, and no provincial regulator has fully committed to it. The OSC has expressed strong support for it, and so has Ontario Finance Minister Charles Sousa. However, regulators in Quebec, Alberta, and BC have resisted the call for a best-interest standard; they have cited various reasons, including the suggestion that existing regulations should already provide sufficient protection.
“We have a somewhat dysfunctional regulatory system,” Pascutto said. “We have 13 securities regulators who have to agree on an initiative, and … You've got all the major financial institutions — well over 100,000 people employed in selling these products who are generally going to oppose changes that are detrimental to their income.”
Not all investor advocates are in favour of this measure. Stan Buell, who heads the Small Investor Protection Association (SIPA), is concerned that the standard is still not adequately fleshed out, which could lead to misinterpretation and a “continuation of deception.”
He also noted the two-year window for consumers to file a complaint after realizing they’ve been victimized, saying that it’s too short. “Victims of life-altering [financial] loss cannot recover, find out what happened to them and determine a course of action within a two-year limitation period,” he said.
Do you have a strong opinion on this industry debate? If you'd like to write a guest column on the topic, pro or con, or know someone else who might, contact Joe Rosengarten at Wealth Professional: [email protected].
For more of Wealth Professional's latest industry news, click here.
Related stories:
Advisory panel wants tighter investor protections
Bank clients baited using title trickery: SIPA
