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Mandate Requirement to Put Clients’ Best Interests First: FAIR Canada

Canadian retail investors depend on the integrity of the client-financial advisor relationship and consumers believe that those providing investment advice are acting in their best interests. Financial institutions and financial advisors’ marketing and advertising also gives consumers the impression that they will provide advice that is in the client’s best interests. Regulatory requirements need to be changed to be better aligned with consumer expectations.

FAIR Canada, the Hennick Centre for Business and Law, and the Toronto CFA Society convened an Expert Roundtable, bringing together investor advocates, industry participants and regulators to examine the need for, and implications of, introducing a requirement for financial firms and financial advisors to put clients’ best interests first. 

“Canadian investors need clearly defined protections,” said Ilana Singer, Deputy Director, FAIR Canada. “A uniform, national requirement for financial advisors to place their clients’ interests ahead of their own and their firm’s interests would help clarify the financial client-advisor relationship. It would also demonstrate that Canada is keeping pace with best practices in other developed markets in this important area.”  

Countries such as U.S. and the UK have moved ahead of Canada in their initiatives to strengthen investor protections within the client-financial advisor relationship. 

Today’s Expert Roundtable discussion focused on three key areas: (1) the current regulatory framework governing client-advisor relationships; (2) what, if any, changes might offer better protection for investors; and (3) what the practical implications of a change in framework might be for industry, investors and regulators.   

In grappling with this complex issue, it was observed that investors are faced with enormous challenges when working with financial advisors.  “Codifying a standard that puts clients’ best interests first will only ignite positive change if its meaning is clearly defined in comparison to the existing standard,” noted Ms. Singer. 

“Regretfully, many investors are vulnerable to being sold complex, high-fee products that can be contrary to consumers’ best interests by salespeople that hold themselves out as trusted financial advisors,” said Ermanno Pascutto, Executive Director, FAIR Canada.  

Mr. Pascutto concluded, “Current legal requirements for financial advisors are a mix of “suitability” obligations and “buyer beware”, although consumers may not be aware of this. Mandating a uniform national requirement, together with clearly defined consequences for failure to comply, would display strong dedication and commitment by Canada’s regulators and governments to strengthening investor protection. The financial industry should support a duty to act in the client’s best interests if they want to restore public trust in the financial industry.”

The views expressed above are those of FAIR Canada, and do not reflect the views of the Hennick Centre for Business and Law, the Toronto CFA Society, or those of any specific Roundtable participants. In addition, the description above is not intended to depict any consensus reached at the Roundtable.

February 24, 2011