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FAIR Canada's Monthly Review
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Status Quo Unacceptable For Canadian Investors
This month, FAIR Canada released its comments on the CSA's Best Interest Standard consultation. FAIR Canada strongly agrees with regulators who are of the view that the status quo is not an option. Real reforms are required - both to ensure that investors are adequately protected and to achieve fair and efficient markets.
As we have long advocated, in order to improve outcomes for Canadians and achieve effective competition, a statutory best interest standard is urgently needed. Canadians deserve professional, unbiased, objective financial advice.
A critical part of a statutory best interest standard is a prohibition on conflicted remuneration. Trailing commissions and other misaligned incentives must be prohibited. Other leading jurisdictions have done just that. The reforms in other jurisdictions are yielding greater protection and better outcomes for investors. Canadians deserve no less.
Best wishes for the month ahead.
The Team at FAIR Canada
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FAIR Canada strongly believes that Canada urgently needs to implement reforms so that dealers and their individual registrants ("financial advisors") have a statutory duty to act in their client's best interests and to ensure that they will be able to meet their obligations to do so. FAIR Canada strongly believes this requires enactment of a statutory best interest duty. The Proposed Targets Reforms will not suffice. They are inadequate because they do not effectively address conflicts of interest and other problems that can, and frequently do, exist at the heart of the relationship between dealers, financial advisors and their clients. We agree with the CSA that the status quo will not suffice given the multitude of problems governing the relationship between dealers, financial advisors and their clients. A statutory best interest standard that results in professional, unbiased, objective advice focused on what is best for the investor is urgently needed.
The Content of a Statutory Best Interest Standard:
FAIR Canada recommends that, to be meaningful, the statutory best interest standard should require dealers and their individual registrants to:
- Act fairly, honestly and with a duty of loyalty or duty of utmost good faith to the client.
- Put the client's interests first (in other words, make the client's interests paramount).
- Avoid conflicts of interest.
- When, in exceptional circumstances, the conflict cannot be avoided, it should be addressed through management techniques such as informational barriers, or dealing restrictions, provided that any management technique will actually protect the interests of the client.
- Require a standard of care where the financial advisors perform their services and provide advice with the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances; the standard of care should take into account the special knowledge or experience that the firm and the individual holds themselves out as possessing.
- Take any step that, at the time the advice is given and throughout the continuation of the professional relationship, would reasonably be regarded as being in the best interests of the client, given the client's relevant circumstances.
Read the full article
here.
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FAIR Canada has stated that over-the-counter trading in contracts for difference (CFDs), rolling-spot foreign exchange contracts, and binary options should remain subject to full prospectus and reporting requirements. CFDs and rolling-spot exchange contracts are complex, high-risk products that are often associated with leveraged investing and are unsuitable for the overwhelming majority of retail investors.
FAIR Canada does not support the introduction of a prospectus exemption that would make it easier to sell these products to retail investors.
With respect to reporting requirements, FAIR Canada reminds the Alberta Securities Commission that Reports of Exempt Distribution are important tools for collecting key information on the exempt market, and that regulators can use this information to assist with effective regulation and the development of a strong regulatory framework for the exempt market. The requirement to file a Report of Exempt Distribution is therefore crucial, and no exemption from filing this report for CFDs, rolling-spot foreign exchange contracts or binary options should be granted.
Read full submission
here
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The CSA has released a series of five videos aiming to explain the basics of the client relationship model, Phase 2 (CRM2) reforms, including account performance, relationship disclosure and costs. The CSA's chairman, Louis Morisset, said he hopes the videos "build much needed awareness" about CRM2.
In July FAIR Canada released its own set of seven videos - "How much you made and what you paid" -to help investors understand CRM2. The series includes informational videos on benchmarking and money-weighted versus time-weighted returns, in addition to videos focused on charges and compensation, understanding investment performance reports and DSC Funds. Click here to watch FAIR Canada's CRM2 videos.
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Editorials
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Class dismissed
Overcautious courts are erecting barriers to securities class actions, even though these lawsuits are essential for maintaining the integrity and fairness of our capital markets
Read the full editorial here.
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FAIR in the Media
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Events
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Save the Date for upcoming Shareholder Rights Conference:
Are Shareholder Rights Relevant in Today's Capital Markets?
FAIR Canada, The Program on Ethics in Law and Business at the University of Toronto Faculty of Law and the Canadian Coalition for Good Governance are pleased to co-host a conference examining shareholder rights in Canada. Friday, October 28th, 2016 from 9:00 am to 1:00 pm. Click here for more details or to register.
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Want to know more about FAIR Canada?
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Who is FAIR Canada and what does FAIR Canada do? Find out more about us
here.
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