As Canadians, we have a tendency to look elsewhere for excellence, not always fully recognizing our nation’s achievements and strengths. This lack of confidence is unfortunate. As individuals and as institutions, we have many accomplishments we can point to in a wide range of areas.
One such area is securities regulation, for which Canada has been ranked by international research bodies as being among the best in the world. A study from the Organization for Economic Co-operation and Development ranked Canada second in securities market regulation and investor protection, while a recent World Bank study ranked Canada fifth in terms of investor protection.
Supporting these findings is research that consistently demonstrates that Canadian investors have very high levels of trust in their financial advisors. The 2012 Canadian Securities Administrators‘ investor index found that nine in 10 investors are comfortable raising concerns and questions when speaking with their advisors. And in an online consultation carried out for the Ontario Securities Commission’s investor advisory panel, 88% of survey respondents agreed with the statement: “I generally trust the advice I receive from my financial advisor.”
Investor interests in Canada are protected through the duty of dealers and advisors to act fairly, honestly and in good faith within detailed rules on suitability, relationship disclosure, product disclosure, complaint handling, dispute resolution, performance reporting and the use of plain language.
These rules serve Canadian investors well and continue to evolve. The mutual funds sector is proud to have worked with regulators on measures to enhance investor protection significantly – most recently, the client relationship model (CRM) rules and point-of-sale requirements, including the creation of Fund Facts.
In contrast to Canada’s regime of strong disclosure, a few jurisdictions have recently moved to more interventionist models. For example, the U.K. now requires advice fees to be separated from the price of the product. This may be causing less affluent investors to lose access to advice, as advisors focus more intently on high-wealth clients.
Why does this matter? Independent research in Canada has found that members of households who have worked with a financial advisor for four to six years accumulate more than 1.5 times more assets than people in non-advised households who are identical in all other respects.
After 15 years or more with a financial advisor, a household accumulates more than 2.5 times more assets than an otherwise identical non-advised household. Advisors are the most popular way, by far, for Canadians to purchase mutual funds.
The accumulation of wealth, through the discipline that financial advice brings, helps individuals achieve self-reliance in retirement and reduces dependence on publicly funded programs. Building savings is extremely important with today’s shifting demographics; aging populations in countries around the world mean that a higher percentage of people will rely on public pensions and fewer young people are working and contributing to the economy.
This is one reason that securities regulators around the world have been reviewing investor-protection frameworks in recent years. In doing so, regulators are observing the changes initiated by their colleagues in other jurisdictions, evaluating whether to make changes to their local regimes.
In Canada, we need to proceed with utmost caution before importing solutions that have been shaped by non-Canadian legal, business and cultural frameworks. The strength and breadth of our existing regulatory system is an impressive model for the world. Canadian investors today have access to one of the most competitive and sophisticated financial services markets, with easy, affordable and convenient access to a wide range of products through a variety of channels.
The CRM and Fund Facts have put us firmly on the leading edge of transparency and accountability – to the benefit of investors. Over the next several years, as these initiatives are implemented fully, we will be able to observe how successfully they further investors’ understanding and insight. Only then will we be in a position to consider whether further measures are needed.
In the meantime, Canada’s regulators should take pride in what they have accomplished. There is no doubt that our strong policy framework and rigorous regulatory system are key reasons that our investor-protection regime ranks so high.
It is crucial that future regulatory changes preserve the strength and accessibility of our existing system, and not be based on Canadians’ lack of confidence due to our misguided national inferiority complex.
Advisors must take the time to ensure their clients understand and make full use of the CRM and Fund Facts, so that regulators are not tempted to import less effective systems that might ultimately reduce access to financial advice in Canada.
Joanne De Laurentiis is president and CEO of The Investment Funds Institute of Canada.
© 2013 Investment Executive. All rights reserved.
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