Frank Allen, Executive Director, comments on the CSA’s Client Focused Reforms:
“FAIR Canada welcomes today’s releases by the CSA concerning two critically important investor protection initiatives – the client-registrant relationship and mutual fund embedded commissions. Canadians expect and deserve to receive professional, objective financial advice that is free from compensation related and other conflicts that result in the firm and their representatives placing their own interests above those of their clients.
While FAIR Canada continues to believe in an overarching regulatory best interest standard governing the client-registrant relationship, we commend the CSA for developing a harmonized proposal for client focused reforms and look forward to better understanding the extensive and nuanced set of provisions proposed by the CSA, particularly the more robust conflict of interest regime and the broadened mandate for the client’s interest coming first .
We will review with interest and assess the CSA’s proposal to infuse the client’s best interest into conflict of interest reforms, require registrant’s to put the client’s interest first when making a suitability determination and require clarification of what the client should expect from their registrant. FAIR Canada’s consideration and comments on these provisions, coupled with the proposed strengthening of the suitability obligation and the know your client/know your product processes, will focus on their overall adequacy in ensuring that the client’s interest is paramount and comes first in the client-registrant relationship. We are encouraged that the CSA’s proposal is clear that disclosure will not in itself satisfy the obligation to address conflicts of interest (including compensation conflicts) in the best interest of the client. We view the requirements contained in the CSA proposal for accessible and non-misleading disclosure by registrants of titles, qualifications, available product offerings and costs of entering into an arrangement with a firm as an important step in the right direction for the benefit of investors.
FAIR Canada continues to believe that eliminating embedded commissions is the preferable regulatory course of action given the comprehensive, independent research findings (and our view that the market would be able to innovate and adapt), but we are pleased with the CSA’s proposed policy changes to prohibit DSCs, eliminate trailing commissions for online brokerage accounts (discount brokerages) and require all existing and reasonably foreseeable conflicts of interest, including conflicts arising from the payment of third-party compensation (including embedded commissions), to be either addressed in the client’s best interest or avoided. We look forward to better understanding how compensation conflicts will actually in practice be addressed in the client’s best interest so that dealers and their representatives will not act on their conflicts of interest to the detriment of their clients.
FAIR Canada looks forward to working with the CSA and other stakeholders to implement reforms that put into practice available research and behavioural insights so that investors are better protected, receive advice in their best interest and are in a position to achieve better financial outcomes.”