Imposing a fiduciary standard on financial advisors wouldn’t necessarily lead to greater investor protection or stronger enforcement practices in Canada, legal experts said on Thursday.

At a Toronto conference that explored the advisor-client relationship, hosted by FAIR Canada and the Hennick Centre for Business and Law, a panel of lawyers discussed the regulatory impacts of a fiduciary standard on financial advisors.

Kelly McKinnon, a partner at Gowling Lafleur Henderson LLP said imposing a fiduciary duty does not add a lot of substantive protection, and will not necessarily make the jobs of regulators and enforcers easier. She argued that the current standards are sufficient.

“The current standard that applies to all advisors — to act fairly, honestly and in good faith in respect to their clients’ interests — captures in many resects, I think, the same thing that we want to get at in a potential breach of fiduciary duty,” said McKinnon.

“Fundamentally, the tools from an enforcement perspective are there to catch the kinds of misconduct we’re talking about.”

Furthermore, she explained that the concept of fiduciary duty is not well understood or consistently applied. The ambiguity around it makes it relatively easy for offenders to argue that the standard does not apply in all situations, McKinnon said, and so breaches of the duty are challenging to prove.

“In many respects, I think it has the potential to broaden the scope of defenses,” she said. At a minimum, imposing a fiduciary duty on financial advisors would make things more complex as industry members and regulators define the standard and determine how it applies.

Joseph Groia, principal at Groia & Company, agreed that imposing a fiduciary duty on financial advisors would not produce the desired results. He pointed out that the assumption underlying fiduciary relationships is that the client is vulnerable and uneducated, which is not true in all cases.

“What we want to do, rather than creating a remedy based on that assumption, is we want to work on disproving that it’s the fundamental nature of the relationship,” Groia said.

He called on the industry to focus on reducing the proportion of clients who are so vulnerable by improving investor education.

Laura Paglia, a partner at Torys LLP, pointed out that in theory, imposing a fiduciary standard could lead to higher damages for victims, since they would be entitled to restitution. But cases in recent years show that victims in Canada already receive this level of damages despite the lack of a fiduciary standard.

“They were otherwise restituted without needing to go to a fiduciary standard,” she said.

Edward Waitzer, partner at Stikeman Elliott LLP and director of the Hennick Centre for Business and Law, argued that a fiduciary standard is about guiding conduct. Such a standard could effectively reduce the number of disputes that need to be resolved, he said.

Waitzer called the Canadian enforcement system “ineffective,” and suggested that a fiduciary standard could be a step in the right direction.

“Having some sound principles to underlie the relationship might be a good starting point,” he said.

IE