Investor advocates take stock of progress

Bureaud indicated there have been positive developments in terms of the planned reforms to dispute resolution. “We’re also cautiously optimistic that the amalgamation of [the Investment Industry Regulatory Organization of Canada] and the [Mutual Fund Dealers Association of Canada] might ultimately lead to a more seamless ‘one-stop’ experience for investors.”

At the same time, he stressed that the regulatory system “is still highly fragmented and overly complex,” adding that “more needs to be done to enhance investors’ confidence and understanding on how to find the right financial services that meet their needs.”

One basic example is the adequacy of advisor title regulation. The Financial Services Regulatory Authority of Ontario (FSRA), which has been tasked with implementing regulation of the “financial advisor” and “financial planner” titles, continues to face criticism about proficiency requirements for the regulated titles, the approach to enforcement and the accompanying fee structure.

“Beyond prohibiting wholly unqualified individuals from calling themselves financial planners or financial advisors, the framework fails to deliver any additional or meaningful consumer protection,” FAIR Canada said in a submission to FSRA’s consultation on its priorities for the coming year.

The investor advocacy group, which recently published research highlighting the depth of consumer confusion about the use of advisor titles and the qualifications that underpin them, noted Ontario’s regime “focuses on protecting credentials used in [the] industry. The framework fails to focus directly on regulating the quality of the financial advice provided to the public.”

FSRA has maintained that its regime provides, for the first time, a minimum standard for proficiency and creates conduct expectations for the credentialing bodies.

FP Canada’s submission to FSRA’s consultation echoed some of these criticisms. The submission called for higher educational standards for the regulated titles, for FSRA’s enforcement capabilities to be beefed up to deal with violations of the title regulation regime (including added powers to sanction reps) and for the regulator to rethink its approach to cost allocation and fee collection.

These criticisms come amid ongoing efforts in other provinces, including Manitoba and Saskatchewan, to develop title regulation regimes. While harmonization is typically preferred, in this instance there’s concern that smaller jurisdictions may seek to harmonize their regimes with Ontario’s, entrenching its faults.

“[T]here are consistent concerns among stakeholders with aspects of Ontario’s framework that FSRA has not yet addressed, and we cannot support harmonization of poor policies,” FP Canada said.

Investor advocates also are concerned about the industry’s compliance with other regulatory reforms.

Dealers faced their first wave of compliance reviews to test the implementation of the client-focused reforms (CFRs) in the past year, and the results were not encouraging.

The first compliance sweep by the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) focused on the CFRs’ conflict-of-interest provisions. The sweep found that two-thirds of firms had inadequate policies and procedures for dealing with conflicts, 53% had missing or incomplete disclosure, and 34% failed to identify material conflicts.

Bureaud called the reviews’ findings “disappointing.”

“Frankly, [given] the considerable time and effort put into the CFRs, including helping the industry to prepare over a long transition period, we were expecting to see better results,” he said.

The Ontario Securities Commission’s draft priorities for the year ahead include continuing to examine compliance with the CFRs. The OSC said its next round of reviews will focus on suitability, know-your-client and know-your-product provisions. Pending the outcomes of these reviews, the regulator may consider further policy action.

The prevalence of proprietary product shelves will also receive attention from regulators in the coming year, particularly the impact on client fees and performance. The OSC said that along with CIRO and the rest of the CSA, it will continue investigating the industry’s product shelves and some firms’ heavy reliance on in-house products.

This article appears in the December issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.