Investor rights group calls CSA’s proposed regulatory reforms ‘inadequate’
After industry groups and registrants called on the CSA to conduct a cost-benefit analysis of their proposed best interest standard for investors, FAIR Canada echoed sentiments previously expressed by other investor rights groups, calling the proposed reforms “inadequate.”
“The Proposed Targets Reforms will not suffice. They are inadequate because they do not effectively address conflicts of interest and other problems that can, and frequently do, exist at the heart of the relationship between dealers, financial advisors and their clients,” FAIR Canada said in an open letter published on their website.
As a counter-proposal, the investor rights group outlined reforms that they deemed necessary for a best interest standard, which include prohibiting conflicted remuneration (including embedded third-party commissions) for all portfolio managers, dealers, and financial advisors; increasing education and proficiency requirements for financial advisors; disallowing commissions or fees in leveraged strategies; requiring transparency in referral fees; reforming the definition of “outside business activities”; mandating plain-language disclosures and explanations of services; ensuring effective enforcement; and altering the consumer redress process to allow OBSI to issue binding decisions.
With regards to investment firms with conflicts of interest, such as those whose shelves are limited to one kind of offering or propriety product line, the group expressed a desire to abolish such firms. However, should that not be possible, they suggested that such firms’ activities be limited to product sales and not include any representations of themselves as advisors.
To simplify the designations for professionals in the industry, FAIR Canada suggested that business titles be limited to three categories: “Investment Advisor” or “Financial Advisor,” “Portfolio Manager,” and “Salesperson.” In their view, simplifying the nomenclature will let consumers distinguish between professional financial advice and sales pitches, which should be taken with a pinch of salt.
“FAIR Canada, shares the CSA’s view that the status quo is not acceptable, but we maintain the response required is not one of incremental steps,” they said. “Such an approach would be woefully inadequate. Instead, the opportunity should be seized now to institute a profound shift to a statutory best interest standard that will ensure Canadians receive the objective, professional financial advice they need and expect.”
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“The Proposed Targets Reforms will not suffice. They are inadequate because they do not effectively address conflicts of interest and other problems that can, and frequently do, exist at the heart of the relationship between dealers, financial advisors and their clients,” FAIR Canada said in an open letter published on their website.
As a counter-proposal, the investor rights group outlined reforms that they deemed necessary for a best interest standard, which include prohibiting conflicted remuneration (including embedded third-party commissions) for all portfolio managers, dealers, and financial advisors; increasing education and proficiency requirements for financial advisors; disallowing commissions or fees in leveraged strategies; requiring transparency in referral fees; reforming the definition of “outside business activities”; mandating plain-language disclosures and explanations of services; ensuring effective enforcement; and altering the consumer redress process to allow OBSI to issue binding decisions.
With regards to investment firms with conflicts of interest, such as those whose shelves are limited to one kind of offering or propriety product line, the group expressed a desire to abolish such firms. However, should that not be possible, they suggested that such firms’ activities be limited to product sales and not include any representations of themselves as advisors.
To simplify the designations for professionals in the industry, FAIR Canada suggested that business titles be limited to three categories: “Investment Advisor” or “Financial Advisor,” “Portfolio Manager,” and “Salesperson.” In their view, simplifying the nomenclature will let consumers distinguish between professional financial advice and sales pitches, which should be taken with a pinch of salt.
“FAIR Canada, shares the CSA’s view that the status quo is not acceptable, but we maintain the response required is not one of incremental steps,” they said. “Such an approach would be woefully inadequate. Instead, the opportunity should be seized now to institute a profound shift to a statutory best interest standard that will ensure Canadians receive the objective, professional financial advice they need and expect.”
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