FAIR Canada Lauds Efforts of Consumer Focused OSC and FCNB (Ontario and New Brunswick Regulators)
FAIR Canada is disappointed to learn from the Canadian Securities Administrators that only Ontario and New Brunswick will continue working on articulating a regulatory best interest standard. A best interest standard would greatly improve the dealer/advisor-client relationship. Firms and advisors would be required to provide professional objective advice in the best interests of their client.
While the Nova Scotia Securities Commission and the Financial and Consumer Affairs Authority (Saskatchewan) have indicated that they are open to further considering a regulatory best interest standard “provided substantial revisions are made to add clarity and predictability”, we do not understand the decision by the other jurisdictions that Canadians should not have the financial services industry act in their best interests.
Instead, these jurisdictions are willing to accept existing business models that harm consumers, rather than implementing meaningful reforms that will serve the interests of Canadians.
The proposed targeted reforms will not properly address the problems associated with conflicts of interest and conflicted compensation structures.
The proposed targeted reforms rely on individual firms to manage conflicts, such as through the use of disclosure. Relying on firms to manage conflicts and provide more disclosure is known to protect the financial industry, not consumers.
FAIR Canada is strongly of the view that conflicts must be addressed at a structural level. This means having compensation structures that avoid conflicts of interest, banning embedded commissions, and eliminating unrealistic sales targets, so that Canadian can save more while the financial industry will be able to earn deserved profits.
Structural changes would also eliminate the need for conflicts disclosure, and correspondingly reduce much of the regulatory burden and cost associated with disclosure.
FAIR Canada is optimistic that meaningful change related to a best interest standard will eventually proceed in Ontario and New Brunswick, to be adopted later by the other provinces and territories.
FAIR Canada opposes the elimination of the OSC and FCNB, and their replacement by the proposed Cooperative Capital Markets Regulator.
FAIR Canada chair Ermanno Pascutto was quoted, in a story by Erica Johnson of the CBC, as saying, “We’re very disappointed that the majority of securities regulators in Canada don’t favour Canadians having professional financial advice that’s in their interest.”
The CBC story also notes that investor advocates and investor focused organizations are disheartened by the CSA announcement, as savings will continue to be managed by individual salespeople who are not bound by a best interest duty.
FAIR Canada welcomes the strong statement by OSC vice-chair Grant Vingoe, as reported by Clare O’Hara of the Globe and Mail: “We have been clear all along that we support a best-interest standard and are prepared to demonstrate leadership here. It’s what investors expect and deserve. This is about doing the right thing – and fulfilling one of our greatest responsibilities as a regulator: delivering effective investor protection to the public we serve. There’s more work that needs to be done to establish how the best-interest standard would apply across the various business models in the market.”