IIROC has released for comment proposed guidelines limiting recommendations in the space
IIROC is requesting for comments on its newly published guidance on order-execution only (OEO) activities.
“OEO firms provide investors who are comfortable making their own investment decisions with a low-cost alternative to the traditional advisory account,” said a release from the regulator. While registrants generally must adhere to certain client suitability requirements in their offerings, OEO firms are exempt from these; they can accept client orders as long as they don’t give recommendations of their own.
“In response to rapid changes in technology and shifting investor needs, OEO firms are quickly evolving the range of tools, services and products they offer their clients,” said Wendy Rudd, IIROC senior vice-president for member regulation and strategic initiatives. “It is crucial that the rules and guidance are clear and appropriate to ensure that firms carry on only the activities they are registered to conduct.”
The rise in use of OEO platforms has come with an increase in functionality, with OEO firms offering educational, portfolio analyzer, and automatic portfolio rebalancing tools. Of particular concern to IIROC is the use of model portfolios, which in their view constitute a recommendation and therefore should not be offered by OEO firms. The proposed guidelines set out criteria for permitted portfolios, which would count as limited advice that would still be acceptable for OEO firms to dispense.
“Given the continuing fast pace of change in the environment, we want to get input from a broad range of industry and investor stakeholders before finalizing this guidance,” Rudd said.
The organization is asking for written comments on the proposed guidance to be submitted by Dec. 19.
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“OEO firms provide investors who are comfortable making their own investment decisions with a low-cost alternative to the traditional advisory account,” said a release from the regulator. While registrants generally must adhere to certain client suitability requirements in their offerings, OEO firms are exempt from these; they can accept client orders as long as they don’t give recommendations of their own.
“In response to rapid changes in technology and shifting investor needs, OEO firms are quickly evolving the range of tools, services and products they offer their clients,” said Wendy Rudd, IIROC senior vice-president for member regulation and strategic initiatives. “It is crucial that the rules and guidance are clear and appropriate to ensure that firms carry on only the activities they are registered to conduct.”
The rise in use of OEO platforms has come with an increase in functionality, with OEO firms offering educational, portfolio analyzer, and automatic portfolio rebalancing tools. Of particular concern to IIROC is the use of model portfolios, which in their view constitute a recommendation and therefore should not be offered by OEO firms. The proposed guidelines set out criteria for permitted portfolios, which would count as limited advice that would still be acceptable for OEO firms to dispense.
“Given the continuing fast pace of change in the environment, we want to get input from a broad range of industry and investor stakeholders before finalizing this guidance,” Rudd said.
The organization is asking for written comments on the proposed guidance to be submitted by Dec. 19.
Related stories:
IIROC and CDIC partner up to protect consumers
Investors most concerned about unsuitable investments
