The Investment Industry Regulatory Organization of Canada (IIROC) has issued draft guidance regarding compensation structures for retail investment accounts. IIROC has requested comments on its proposed guidance, which are due in mid-November.
In particular, the draft guidance identifies advantages and disadvantages of commission-based and fee-based accounts and identifies a number of specific issues for dealer members and registered representatives to consider in determining the suitability of compensation arrangements for any given client.
IIROC’s draft guidance reviews international developments relating to advisor compensation and suggests that dealer members may need to adjust long standing supervisory practices to ensure current practices are appropriate for both fee-based and traditional commission-based accounts.
In order to meet regulatory requirements, the draft guidance suggests that proper procedures must be in place to:
- assess the initial suitability of each account opened, taking into account the factors applicable to commission- and fee-based accounts, in particular;
- provide proper disclosure to clients about the features of both commission- and fee-based accounts and how they differ from one another;
- effectively supervise the ongoing activity in both commission- and fee-based accounts, as applicable; and
- prevent the double-charging of clients as a result of embedded commissions or improper transfers between commission and fee-based accounts.
FAIR Canada encourages investors to provide comments on the draft guidelines.