FAIR Canada supports the IIROC initiative to issue requirements and best practices for the distribution of non arm’s-length investment products. But it recommends that IIROC go further that what is provided for in the draft Guidance Note, including the following:

1) The IIROC rules should state that the test for the sale of a non arm’s-length product should be whether the sale is in the best interests of the client.

2) Disclosure should be in plain language and the dealer should be required to produce objective evidence that the client actually understood the product (including conflicts and risks), as evidenced by the client’s signature on a 2-3 page summary disclosure document similar to the Fund Facts document proposed for mutual funds.

3) For some non arms’-length products, disclosure of conflicts is not enough. These products should not be sold to retail clients.  The example provided in the comment letter is debt of an affiliated entity, unless the debt is issued by a regulated financial institution or there is other assurance as to the creditworthiness of the related entity.

4) The IIROC rules should mandate that dealer members have written policies and procedures in place for the sale of non arm’s-length products.

5) Since a number of provisions in the guidance note are mandatory, those provisions should be made into IIROC rules. 

Click here to read the full FAIR Canada submission.