2021 Year In Review: Important Milestones For Investor Rights
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The past year has been challenging as many of us were forced to continue to adjust our lifestyles during the COVID-19 pandemic and embrace changes that now seem to be the “new normal”. This period also provided some investors more time and savings to invest; for example, Canadian investors bought record amounts of mutual funds and exchange-traded funds (ETFs) in 2021.
Several other important milestones were achieved in 2021 that will also help better protect investors. Here is a quick run-down of a few key milestones from 2021 that focused on encouraging the financial industry and advisors to put investors’ interests first when serving their clients. While there is more work to be done, FAIR Canada is pleased that these much-needed reforms are finally being implemented.
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Unfair Mutual Fund Fees to be Banned Across Canada
In May 2021, the long-awaited nation-wide ban on deferred sales charges (DSCs) and certain trailing commissions for mutual funds and ETFs was announced. The ban represents a major achievement in our advocacy efforts to protect ordinary investors from these unfair types of fees. Beginning June 1, 2022, your advisor or firm will no longer be able to charge deferred sales charges and, in the case of do-it-yourself investors, trailing commissions. This is a big win for investors and the decade-long advocacy efforts by groups such as FAIR Canada and others.
New Rules to Help Put Your Interests First
Effective June 30, 2021, new rules require advisors to resolve “material conflicts of interest” in an investor’s favour when providing investment advice. The rules, which are part of the Client-Focused Reforms, also require your advisor to inform you about these conflicts in a timely manner.
Other important components of the Client-Focused Reforms took effect on December 31, 2021. The new rules and/or changes include: requiring your advisor to have a deeper understanding of the investments they sell to you (Know Your Product); ensuring investments are suitable for you (Know Your Client); and preventing your advisor from using misleading business titles.
Protecting Vulnerable Investors
In July 2021, Canadian securities regulators announced new rules designed to better protect older and vulnerable investors. These rules allow investors to designate a “Trusted Contact Person” who can be contacted to act on their behalf if there is an indication that the investor is being financially exploited. The rules, which took effect on December 31, 2021, also authorize advisors to place a temporary hold on client accounts, if they believe an investor is being financially exploited.
Improving the Complaints Process
At the beginning of 2021, the Capital Markets Modernization Taskforce of Ontario issued its final report
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recommending needed enhancements for investor protection, including giving the Ontario Securities Commission the ability to designate a dispute resolution services organization with binding decision-making power. Obtaining this ability would provide harmed investors with a more efficient and cost-effective way to obtain compensation where appropriate.
In the fall, Canada’s Department of Finance issued a consultation paper seeking to improve the complaints process for consumers of financial products. A key question is whether Canada should have a single External Complaints Body (ECB) with the authority to make binding decisions to resolve complaints and bring closure to the process. In December, Prime Minister Trudeau issued a Mandate Letter asking the Federal Minister of Finance to make establishing of a single ECB with binding decision-making power one of her priorities in 2022.
We also saw new proposed regulations in Quebec that, if implemented, would introduce critical enhancements for how financial institutions address complaints from their clients.
Big Banks Decide to Limit Choice for Investors
Unfortunately, September 2021 was a reminder that we need to continue to work hard to ensure that financial institutions stay focused on putting investors’ interests first. This was the month in which three of Canada’s Big Five banks decided to limit their clients’ choices in their bank branches by no longer selling mutual funds from other firms. This was in response to the Know Your Product rules, which are a component of the Client-Focused Reforms. In our view, and the view of many others, their decision goes against the spirit and intent of the new rules.
FAIR Canada and others have called these banks to task for putting their own interests ahead of their customers’ interests (read our views on this issue). In response, we were encouraged to see the Ontario government ask the province’s securities regulator to undertake an analysis of these actions by the banks and report back with its findings (learn more).
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Looking Ahead to 2022
We’re committed to continuously working with regulators and industry professionals who care about putting the needs of everyday investors at the core of everything they do. Let’s make 2022 the “Year of the Investor” in Canada! At FAIR Canada, some key areas we plan to focus on this year include, among others:
· Implementing concrete improvements to the complaints process for all investors across Canada, so that it is simple, fair, and effective, with easy access to adequate compensation for those who may have been harmed, for example, by unsuitable advice.
· Addressing the challenges of the pandemic and the related rise in the number of do-it-yourself investors, who may rely on questionable social media information sources, or who may believe investing in meme stocks is part of a sound investment strategy. There are also growing concerns with online investing
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platforms that use “gamification” gimmicks to encourage higher volumes of trading to increase their own profits, as opposed to the investor’s returns.
We look forward to tackling these and many other issues throughout the new year, as part of our ongoing effort to advance the interests of retail investors across Canada. We thank you for your continued support of our work and mission.
Coming Soon: Look Out For FAIR Canada 2.0!
We have other news that we are excited to share! In early 2022, we’re launching a new website that puts important investor-related information front and centre. The new website will be user-friendly and will highlight helpful investing information, tools, and resources—all designed with investors like you in mind.
Whether you’re a first-time investor, thinking about saving for your children’s education, or planning for your retirement, you can access our valuable resources to help you know your rights as an investor. And you’ll get information that’s easy to understand to assist you in your investing journey.
To make sure you don’t miss all the valuable information and exciting changes happening at FAIR Canada, please subscribe below!
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36 Toronto Street, Suite 850
Toronto, Ontario M5C 2C5
647-256-6690
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