Canada’s se­cu­ri­ties reg­u­la­tors pro­pose sweep­ing changes to bet­ter pro­tect con­sumers from poor fi­nan­cial ad­vice,


Cana­dian se­cu­ri­ties reg­u­la­tors pro­pose sweep­ing changes that they say will bet­ter pro­tect con­sumers from poor fi­nan­cial ad­vice, ex­ces­sive fees and un­der­per­form­ing in­vest­ments. The move comes at a time when more con­sumers must rely on fi­nan­cial ad­vis­ers to help them save for re­tire­ment as fewer firms of­fer tra­di­tional de­fined-ben­e­fit pen­sion plans.

The cen­tre­piece change would legally re­quire fi­nan­cial ad­vis­ers to put their clients’ “best in­ter­ests” ahead of their own, the Cana­dian Se­cu­ri­ties Ad­min­is­tra­tors say in a con­sul­ta­tion pa­per re­leased Thurs­day.

The “best in­ter­ests” rule would mean, for ex­am­ple, that an ad­viser could not steer a client to the mu­tual fund (or other se­cu­rity) that pays the ad­viser the high­est fee but may not be the best-per­form­ing in­vest­ment for the client.

“This is a very ex­cit­ing day for Cana­dian in­vestors be­cause many of th­ese changes have hap­pened else­where in the world and Canada is far be­hind,” said Mau­reen Jensen, chair and chief ex­ec­u­tive of­fi­cer of the On­tario Se­cu­ri­ties Com­mis­sion, Canada’s largest se­cu­ri­ties reg­u­la­tor.

“As more and more Cana­di­ans have to in­vest for them­selves, they are re­ally reliant on their ad­vis­ers,” Jensen said in a phone in­ter­view.

Con­sumers place too much trust in their ad­vis­ers, know too lit­tle about fees that erode sav­ings, and are some­times steered to­ward in­vest­ments that are too risky, research by the se­cu­ri­ties ad­min­is­tra­tors found.

Mean­while, an in­vestors’ ad­vo­cacy group says the pro­posed changes may not go far enough.

As long as fi­nan­cial ad­vis­ers are com­pen­sated by fund com­pa­nies for rec­om­mend­ing their prod­ucts, they in­her­ently face a con­flict of in­ter­est, said Neil Gross, ex­ec­u­tive di­rec­tor of the Foun­da­tion for the Ad­vance­ment of In­vestor Rights.

“It’s re­ally good that the CSA has ac­knowl­edged the need for change. The ques­tion is whether the pro­pos­als they’re ex­am­in­ing are suf­fi­cient to bring about pro­found change.

“We are con­cerned that the doc­u­ment seems to sig­nal that you can have a best in­ter­est duty that still per­mits many of th­ese con­flicts to ex­ist in the busi­ness mod­els that are uti­lized,” Gross said.

The con­sul­ta­tion pa­per will be cir- cu­lated for com­ment for 120 days, af­ter which a fi­nal rule would be pub­lished. No tar­get date has been set. The step is the lat­est in a process that be­gan in 2012.

Groups rep­re­sent­ing fi­nan­cial ad­vis­ers have ar­gued the ex­ist­ing rules, such as “know your client,” which as­sesses the clients’ risk tol­er­ance, are ad­e­quate to pro­tect con­sumers.

An in­dus­try as­so­ci­a­tion that rep­re­sents ad­vi­sory ser­vices at banks and other in­sti­tu­tions said it has “grave reser­va­tions” about the pro­posed “best-in­ter­est” stan­dard.

It could lead to con­fu­sion for both ad­vis­ers and clients if some ad­vis­ers be­gin re­strict­ing what prod­ucts and ser­vices they of­fer, while some clients may have un­re­al­is­tic ex­pec­ta­tions, the In­vest­ment In­dus­try As­so­ci­a­tion of Canada said in a state­ment.

The re­sult could be in­creased lit­iga- tion and le­gal costs, the as­so­ci­a­tion said.

The mu­tual fund in­dus­try said it “shares our reg­u­la­tor’s goal of build­ing ad­viser-client re­la­tion­ships that lead to good in­vestor out­comes,” said Joanne De Lau­ren­tiis, pres­i­dent and chief ex­ec­u­tive of­fi­cer of the In­vest­ment Funds In­sti­tute of Canada.

“Canada al­ready has a ro­bust reg­u­la­tory frame­work that serves in­vestors well, but there will al­ways be room for im­prove­ment,” she added in a state­ment.

The pro­posed “best-in­ter­ests” rule would ap­ply to all fi­nan­cial ad­vis­ers, in­clud­ing those work­ing for banks, in­de­pen­dent deal­ers and mu­tual fund com­pa­nies in all prov­inces ex­cept Bri­tish Columbia.

While most ad­vis­ers do their best for their clients, the CSA said, con­sumers need bet­ter pro­tec­tion.

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