The association spoke out on the best-interest standard, embedded commissions and fintech regulation
Advocis has issued its comments on the Ontario Securities Commission’s (OSC) draft statement of priorities for the year 2017-2018.
In its letter to the regulator, the group agreed with the principle of investor protection, but expressed concerns that the regulator’s target policies were based on the questionable behaviour of just a few advisors.
On the best-interest discussion, Advocis said it was in favour of a best-interest duty (BID) that is interpreted and implemented by the financial advice profession.
“We believe that the creation of a regulatory BID by provincial securities regulators is not the right approach,” a letter from the group to the regulator read. “A regulator-imposed BID would be unfair and unworkable, because regulators are far detached from the day-to-day practice of financial advisors.”
The group also cited the dissenting opinions of Quebec, Manitoba, BC, and Alberta against introducing a regulatory best-interest duty and pushing for targeted reforms instead.
Weighing in on embedded commissions, Advocis said that the majority of investors are unable to afford a direct fee. Therefore, banning embedded commissions would lock many consumers with lower financial knowledge and assets out of the market for advice. Citing various reports, the group said retail investors in the UK faced increasing costs of advice following a ban on embedded commissions in the country.
Advocis also cited a report on MFDA licensed advisors’ impact on the Canadian mass market. The MFDA represents close to nine million Canadian households, 80% of which have less than $100,000 worth of assets to invest. “If embedded compensation were to be banned in Canada, we could be facing the same unintended consequences as in the UK,” the group said.
According to the group, any regulatory issues with embedded compensation, such as conflicts of interest, could be addressed by improvements in transparency and disclosure through CRM2.
Fintech was also a point of concern. Advocis acknowledged that the fintech sector presents opportunity for growth. However, the group called the regulator out on its willingness to include fintech stakeholders in developing regulations to govern them, “yet has continually dismissed financial advisors’ and planners’ requests to be involved in their own regulation.”
“It is critical that regulators not only look to new innovations in the fintech sector, but look to the evolution that is taking place within the established financial advice channels,” the group said. “Absent properly regulating the existing channels and recognizing that the form of regulation must change – even to the point of self-regulation – the OSC risks supporting one part of the sector over another with serious negative consequences for the industry and consumers.”
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CSA chair speaks out on best-interest standard
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In its letter to the regulator, the group agreed with the principle of investor protection, but expressed concerns that the regulator’s target policies were based on the questionable behaviour of just a few advisors.
On the best-interest discussion, Advocis said it was in favour of a best-interest duty (BID) that is interpreted and implemented by the financial advice profession.
“We believe that the creation of a regulatory BID by provincial securities regulators is not the right approach,” a letter from the group to the regulator read. “A regulator-imposed BID would be unfair and unworkable, because regulators are far detached from the day-to-day practice of financial advisors.”
The group also cited the dissenting opinions of Quebec, Manitoba, BC, and Alberta against introducing a regulatory best-interest duty and pushing for targeted reforms instead.
Weighing in on embedded commissions, Advocis said that the majority of investors are unable to afford a direct fee. Therefore, banning embedded commissions would lock many consumers with lower financial knowledge and assets out of the market for advice. Citing various reports, the group said retail investors in the UK faced increasing costs of advice following a ban on embedded commissions in the country.
Advocis also cited a report on MFDA licensed advisors’ impact on the Canadian mass market. The MFDA represents close to nine million Canadian households, 80% of which have less than $100,000 worth of assets to invest. “If embedded compensation were to be banned in Canada, we could be facing the same unintended consequences as in the UK,” the group said.
According to the group, any regulatory issues with embedded compensation, such as conflicts of interest, could be addressed by improvements in transparency and disclosure through CRM2.
Fintech was also a point of concern. Advocis acknowledged that the fintech sector presents opportunity for growth. However, the group called the regulator out on its willingness to include fintech stakeholders in developing regulations to govern them, “yet has continually dismissed financial advisors’ and planners’ requests to be involved in their own regulation.”
“It is critical that regulators not only look to new innovations in the fintech sector, but look to the evolution that is taking place within the established financial advice channels,” the group said. “Absent properly regulating the existing channels and recognizing that the form of regulation must change – even to the point of self-regulation – the OSC risks supporting one part of the sector over another with serious negative consequences for the industry and consumers.”
For more of Wealth Professional's latest industry news, click here.
Related stories:
CSA chair speaks out on best-interest standard
Advisor: Why I support the ban on embedded fees
