Response to IIROC consultation calls for industry to go beyond stock selection and traditional risk profiling, among others
Responding to a consultation by the Investment Industry Regulatory Organization of Canada (IIROC), an investor advocacy group is calling on the industry to go further toward providing holistic financial advice, rather than just concentrating on investment products and stock recommendations.
In a letter commenting on IIROC’s proposed competency profile for registered representatives (RR), Kenmar Associates commended the SRO’s consultation paper’s description of the basic skill set needed to provide personalized investment advice to retail clients.
However, it went on to say that the proposed profile still falls short of what’s needed for retail investors to receive holistic financial advice, which is what many IIROC firms promote and market.
“Anecdotal feedback from a few IIROC registrants suggests (a) there is more emphasis on stock selection than portfolio design in training and (b) there is a message conveyed that hot funds, hot stocks can be found,” Kenmar said in the letter. “There are still too many ‘stockbrokers’ in the industry masquerading as wealth managers.”
Citing its dealings with retail investors, Kenmar cited numerous opportunities to improve RR competency, including but not limited to:
- Understanding of all applicable laws rules, procedures and policies, including NI 81-105;
- Familiarity with the principles of behavioural finance;
- Assessing a client’s risk profile;
- Knowing when to avoid DSC option mutual funds;
- Providing advice on de-accumulating accounts such as RRIFs;
- Understanding how to resolve conflicts of interest in the best interest of clients; and
- Up-to-date awareness on ESG investing and Bitcoin.
Kenmar also called attention to a systemic need to improve the risk-profiling process, citing a 2015 report from the OSC’s Investor Advisory Panel. Aside from a lack of consistency in definitions of risk concepts, it found the majority (83.3%) of questionnaires used by the industry are not fit-for-purpose because of insufficient questions, poorly worded or confusing questions, and other issues.
The letter also offered suggestions on the expectations consumers have of financial advisors. Drawing from its continuous contact with financial consumers, the group highlighted recommended items such as:
- Complies with a Code of Conduct;
- Has a client -friendly communication process, and is readily accessible through electronic and other means;
- Interacting and communicating with seniors and other vulnerable investors;
- Proactively takes action to ensure KYC is up to date;
- Weaves social benefits programs into the financial plan;
- Keeps up-to-date on securities regulation and dealer rules, policies and procedures;
- Explains the impact of cost/feeson long-term returns;
- Ensures that fees are disclosed, are appropriate, fair and that there is no double billing.
“Above all, retail investors rank trust as the most important advisor characteristic they seek,” Kenmar said. “The training curriculum should therefore have a robust ethics module.”
