Welcome to the October newsletter! This month, we spotlight reforms that could reshape investor protection in Canada—from giving OBSI binding authority to calls for a full ban on advisor chargebacks. We also review recent enforcement and court cases related to investor protection, and highlight free tools available during Investor Education Month. | | Making Complaint Handling Fair for Canadian Investors | | |
Change is within reach for Canadian investors, and FAIR Canada is helping to lead the way. Together with other consumer advocacy groups, we submitted a joint letter to the Canadian Securities Administrators (CSA) with a resounding call: give the Ombudsman for Banking Services and Investments (OBSI) the power to make binding decisions.
Why does this matter? Right now, investors who are treated unfairly often face roadblocks when seeking to resolve complaints. Firms can ignore OBSI’s recommendations or offer low settlements, leaving investors frustrated and empty-handed.
Now, the CSA is poised to level the playing field with its proposal to give OBSI binding authority. No more settlements that shortchange investors – just real, enforceable outcomes that make the system work.
Our coalition comment letter urges regulators to:
- Finalize these reforms quickly and encourage governments to adopt supporting legislation.
- Oversee OBSI in a way that is clear and efficient, without unnecessary bureaucracy.
- Set a $100,000 threshold for appointing an external decision maker (EDM) to review recommendations.
- Make sure EDMs are chosen quickly, and delays are avoided.
- Maintain the six-year limitation period so investors have enough time to seek help.
Strengthening complaint handling remains essential for investor protection. Giving OBSI binding authority for investment complaints will provide harmed investors with a fair and reliable way to resolve issues, helping to restore confidence in Canada’s financial system.
The Path Forward
As the CSA completes its work on the new OBSI framework for binding recommendations, we look forward to next steps. In the meantime, FAIR Canada urges all provinces and territories to follow Saskatchewan’s example and prepare to pass legislation that will enable the impending framework to be established in Canada. Investors can also contact their provincial representatives to share their views. Contact information for securities regulators can be found on the CSA website, and members of provincial legislatures can be found online.
| | Advisor Chargebacks: Why They’re Harmful and Should be Banned | | |
Previously, we broke down how advisor chargebacks work and how they can distort the advice Canadians receive. In our latest comment letter to the CSA, we’re calling for a full ban.
What are Chargebacks?
Chargebacks are a compensation structure in which advisors receive a commission that can be clawed back if the client sells the investment within a specified period. The structure creates a built-in conflict of interest. By providing a healthy form of compensation up front, advisors may be tempted to recommend products that include chargebacks. And because of the claw-back, advisors may try to discourage clients who want to sell their investment within the claw-back period—even when it’s clearly in the client’s best interest.
The CSA’s proposal to prohibit chargebacks for some investment funds is a good start, but it doesn’t go far enough. If the ban applies only to certain products, firms may simply shift the practice elsewhere. Investors deserve consistent protection, no matter what they buy.
Compliance reviews have shown that many firms fail to properly identify, disclose and manage conflicts. These failures raise serious doubts about whether firms can effectively address the structural conflicts inherent in chargebacks. The only way to eliminate the risk is to eliminate chargebacks.
Our comment letter makes it clear: a partial ban won’t cut it. We’re calling on the CSA to ban chargebacks for all securities and issuers, without exception. We’re also calling on them to work with insurance regulators to ban chargebacks in the sale of segregated funds and similar insurance products.
Partial bans leave gaps and put investors at risk. Let’s end conflicted compensation and put investors first.
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Discretionary Trading Without a Client’s Consent – Lesson Learned
A recent enforcement case highlights why it’s important to understand your advisor’s authority. Advisors are not permitted to make trades for you without your explicit permission unless they’re licensed for discretionary trading and you’ve provided written consent. In this case, a former RBC Dominion Securities advisor entered over 23,000 trade orders for 33 clients without their consent or prior approval. While most clients saw significant gains, a few suffered losses, and the advisor generated almost $4.5 million in total commissions.
The advisor was ultimately sanctioned by CIRO for breaching securities rules by conducting high-risk, speculative discretionary trading without prior authorization. He was fined, ordered to pay back some of his commissions and was kicked out of the industry.
Unless your advisor is specifically licensed and authorized for discretionary trading—and you have agreed in writing—they must get your consent before every trade. If that’s not happening, it’s a red flag. Always ask your advisor how decisions are made—and make sure you’re in control.
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DIY Investing: Know the Risks Before You Trade
A recent Ontario court decision highlights an important point for do-it-yourself investors: when you trade on a DIY platform, you’re fully responsible for the outcome—even if you misunderstand how the platform works.
In a recent enforcement case, an investor sued her discount broker after losing money on a biotech stock. The loss occurred because the stock’s value dropped between the time her order was filled and when the funds were debited from her account. The investor claimed she didn’t “acquire” the shares until money left her account, but the court disagreed. The court ruled that it was her responsibility to understand how the platform operated and that her broker was not liable for her losses or for providing advice about the transaction.
DIY investing continues to grow, but it’s not for everyone. Our survey of DIY investors suggests that many DIY investors either feel overwhelmed or lack confidence. If you’re unsure how your platform works, take time to learn—or consider seeking help.
| | FAIR Canada CEO Speaks at Laval University on DIY Investing and Finfluencers | | |
FAIR Canada CEO Jean-Paul Bureaud recently joined a panel at Laval University alongside Professor Cinthia Duclos, Laval University, Steven Lortie-Desmarais, Lawyer, Legal Affairs Directorate, AMF, and Nancy Pelletier, Senior Legal Advisor, Legal Affairs, National Bank Financial, to discuss self-directed investing (aka DIY investing) and the rise of finfluencers. The conversation covered what it means to be a self-directed investor, the legal framework, and the risks and opportunities of digital investment platforms. Mr. Bureaud shared his insights on investor motivations, risks, and the changing regulatory landscape. The conversation also addressed the unique risks posed by online content creators, or “finfluencers,” the evolving regulatory landscape, and how to meet the challenges expected over the next 15 years.
FAIR Canada is committed to keeping retail investors’ interest front and centre as markets evolve. To learn more about the DIY investor landscape, check out FAIR Canada’s investor survey.
| | Investor Education Month: Knowledge Is Power | | |
October is Investor Education Month in Canada, and World Investor Week is recognized globally. Canadian investors have access to many free resources to help them spot fraud, use fintech tools wisely, and understand their rights. Take advantage of these tools this month to protect yourself and make informed decisions.
Here are some resources to get started:
| | Throughout the year, FAIR Canada (Canadian Foundation for the Advancement of Investor Rights) submits many comment letters on various important policy and regulatory matters that have an impact on investors. Read more about our investor advocacy work. | | |
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