Consultation has begun on ideas such as using personal corporations
The way that representatives of mutual fund dealers and investment dealers are permitted to handle compensation payments is being considered by the Canadian Investment Regulatory Organization (CIRO).
The inconsistency of how Approved Persons are compensated across the industry includes employer/employee, principal/agent, and directed commission arrangements.
The regulator has launched a consultation on proposals to level the playing field between those regulated by its Mutual Fund Dealer (MFD) and Investment Dealer and Partially Consolidated (IDPC) rules.
Currently Approved Persons governed by the MFD rules can have compensation they earn from a sponsoring Dealer Member paid to an entity other than themselves, while those governed by the IDPC rules cannot.
While fund reps have historically been able to have compensation paid to a personal corporation, investment dealer reps have not, leaving them unable to benefit from advantages of incorporation including tax benefits.
CIRO has proposed three potential policy changes that would give greater options for investment dealers and enhance investor protection by having a clearer and consistent framework for both types of advisor:
- an enhanced directed commission approach
- an Incorporated Approved Person approach
- and a registered corporation approach
The use of corporations by full-service advisors would come with restrictions on the type of activities for which the incorporated body would be used and on its ownership – likely the Approved Person immediate family, or a family trust – and compliance procedures would be in place.
Some of the proposals would require a change in legislation while others would only need changes to CIRO rules and the oversight burdens are a key part of the consultation as some options would require advisors to register corporations with provincial securities regulators, while CIRO staff’s preferred option would give the SRO oversight of the corporations without the need for provincial registration.
CIRO staff’s preliminary position is to pursue an Incorporated Approved Person approach, as it provides the most flexibility, transparency, and oversight for Approved Persons and their corporations, while minimizing the regulatory burden.
Full details are in a position paper and stakeholders can have their say between now and March 25, 2024, in writing to CIRO.
