The Investment Dealers Association of Canada today responded to “Giving Small Investors A Fair Chance, Reforming the Mutual Fund Industry”, a report issued by the Canadian Association for Retired Persons (CARP).

In a statement, the IDA said the CARP report includes a number of redundant recommendations where rules or policies are already in place as well as a number of inaccuracies.

The IDA drew particular attention to two report findings that it said require clarification or correction.

The CARP report stated that non-statutory self-regulating organizations (SROs) have not provided a fair balance between the interests of investors and those of their member firms and quotes former SEC Chairman Arthur Levitt: “…all SROs, when push comes to shove, favour their listed companies or the brokers that bring them the business. That may be all right in the marketing sense. But the conflict is too great to be allowed to stand”.

The IDA argued that Canadian SROs do not have such a conflict. “The IDA and MFDA, unlike the U.S. SROs he (Levitt) is describing, do not regulate stock exchanges which they own. In Canada, the TSX has delegated regulation to an independent regulatory service provider, Market Regulation Services (RS) Inc.”

The IDA defended its dispute resolution services and Ombudsman services, which the CARP report dismissed as “sponsored by the industry players themselves”.

It noted arbitrations are conducted for clients by three independent, impartial agencies: ADR Chambers, the Quebec National and International Commercial Arbitration Centre and the British Columbia International Commercial Arbitration Centre. It added that if a client chooses arbitration, IDA member firms are required to participate.

The IDA also noted the Ombudsman for Banking Services and Investments offers a free, independent and impartial resolution service for clients, and that IDA member firms are required to fully cooperate and participate in any OBSI investigation.

The IDA disagreed with the recommendation for public announcements when a seller of financial products is under investigation citing the reasons for that investigation. The association said “a public announcement that an individual or firm is under investigation is unfair and can have potentially serious negative reputational and financial consequences for the respondent.”

It added, “Disclosure should only be made when the investigation has established reasonable grounds to proceed with a public hearing.”

The IDA also issued specific comments regarding to five of the reports recommendations, which it considers redundant.

The CARP report called for the establishment a central registry of industry participants. The IDA said the recently created National Registration Database meets this need.

The CARP report recommended securities regulators should be required to actively seek input from investors, on a regular basis. The IDA noted proposed IDA rules must be approved by the CSA and only following a period of public comment and review.

The CARP report said regulations should require firms to maintain and retain records of all complaints received; report how and when they were resolved; and submit this information to regulatory authorities on a monthly basis.

The IDA says it already has a policy (Policy 8) that requires all firms to retain records and to report to the IDA within two to five days all client complaints, all internal firm disciplinary actions, securities related civil actions, arbitrations, criminal convictions or settlement agreements.

The CARP report said undisclosed marketing arrangements that could encourage financial advisors to recommend one fund over another for personal/corporate gain should either be disclosed or prohibited.

The IDA argued there are already rules in place that prohibit compensation arrangements that create unacceptable conflicts of interest in the sale of mutual funds. It noted that the IDA suitability regulations require brokers to make recommendations to clients based on their suitability for the client.

The CARP report also recommended that settlement agreements between investors and firms should be made public — and without confidentiality clauses — at the investor’s discretion.

The IDA said its policies prohibit firms from concluding settlement agreements with clients that include confidentiality clauses, which would prevent regulators from learning about the matter. Moreover, it said all IDA disciplinary settlement agreements are made public and are posted on the IDA web site.