Interim rules for new SRO aimed at mutual fund advisors aren't aligned with public concerns, say stakeholders
Earlier this summer, the Canadian Securities Administrators (CSA) concluded a consultation on proposed rules for its planned creation of a single self-regulatory organization for Canada’s investment industry.
The new SRO will consolidate the functions of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA). In its consultation, the CSA released a set of draft Interim Rules that it proposes for investment dealers and mutual fund dealers under the new single-SRO regime.
One requirement that has stakeholders scratching their heads concerns registered representatives, who are employed by investment dealers, but are approved to deal with mutual funds only. Under the proposed interim rules, those registered representatives would be required to successfully complete the Conduct and Practices Handbook (CPH) course, which has traditionally only been required for IIROC advisors.
“They're basically saying mutual fund advisors, even if they're going to continue to just offer MFDA products, are going to have to get this CPH licensing,” says John Waldron (pictured left), the Founder of Learnedly, a digital training and education platform for Canadian advisors. “And it really doesn't make sense.”
Waldron says registrants required to take the course would be facing a significant cost burden. Part of the CPH course is already covered in MFDA advisors’ basic courses, and there are portions that are not directly relevant to this licensing category. He estimates the remaining material that might be applicable to an MFDA registrant would represent only a small proportion of the content.
“They're asking the MFDA registrants to purchase the entire course, and to study and pass the entire course,” he says. “It’s like if you bought a plane ticket, and rather than giving you a pamphlet to learn the safety rules, the cabin crew told you to read the pilot’s manual.”
According to Waldron, the course costs $900 to take, making it disproportionately expensive for the marginal added knowledge an MFDA advisor would gain from it. Beyond the financial bite, he says the course is not written for MFDA registrants, which makes the material unpalatable to learners and creates the potential for non-compliance.
“For example, the course describes IIROC’s CE requirements for registrants, which are not the same as the MFDA’s CE requirements,” Waldron says. “That can create confusion and even resentment towards the content. As a registrant, you won’t even want to learn it.”
Gillian Kunza, Chief Executive Officer at Designed Wealth Management, and one of The Best Financial Advisors and Professionals Under 40 in Canada, also expressed concerns.
“This is a really large undertaking for the regulators to come together. So there's no shortage of topics that they're reviewing and trying to consider,” Kunza (pictured right) says. “But when you drill down into the smaller pieces of the puzzle, it can generate a lot of conversations, and that includes the CPH.”
Even outside the context of the single-SRO consultation, advisor proficiency has been a challenging topic to follow for years. To Kunza, the proposed requirement for the CPH adds an extra element of confusion as it doesn’t appear to address a public concern.
“Advisors pursue a certain amount of continuing education for compliance, or for professional development to enhance their knowledge,” she says. “The CPH is somewhat redundant with some of the topics compared to courses that mutual fund representatives have already taken. Some of the content is actually irrelevant, because of the products that mutual fund advisors do or don't trade.”
Speaking for her firm, Kunza says the proposed CPH requirement appears to miss the mark on making the Canadian investment industry less confusing for the public, as they don’t see a clear connection between what the CPH course offers and addressing a public concern. Requiring the CPH course, she adds, also seems to be out of alignment with the broader industry trend of ensuring choice in the marketplace and avoiding conflicts of interest.
Currently, the CPH course is offered exclusively by the Canadian Securities Institute (CSI). Kunza recognizes that as a mainstay feature of proficiency for a large swath of advisors, the course offers many stakeholders the benefits of standardization and confidence in time-tested content. Still, the decision to require one particular exam, without assessing other proficiency providers or ensuring there are alternatives, is something that gives her pause.
“It seems in contrast to the underlying goal of having a marketplace for the public that is based on choice and avoiding conflicts,” Kunza says. “The advisors who serve the public effectively don’t have a choice when it comes to building their education and professional proficiency. So I think the selection of the CPH exam maybe skipped that step.”
Waldron agrees. Based on all indications, he says the gap that the CPH requirement appears to be trying to address concerns the Ethics component of the CPH course, which could only be found in the CSI textbook. If that’s the case, he argues it should be straightforward enough to develop a stand-alone ethics program that would align with that.
“However, it’s worth pointing out that MFDA-registered agents now have a mandatory ethics component as part of their new CE requirements. And the section of the CPH that speaks to ethics is very much now rooted in topics that are related to client-focused reforms,” Waldron says. “If those are the skill gaps that the regulators have identified, they are being addressed in other ways that don't require MFDA registrants to purchase this course.”
