As the bright line between traditional investment advice and do-it-yourself investing grows increasingly blurry, and the volume of questionable online advice surges, the Canadian Investment Regulatory Organization (CIRO) is proposing revised guidance that would allow discount brokers to provide investors with generic advice in the form of alerts, educational material and other tools.
The industry self-regulatory organization is seeking comment on proposed revisions to the guidance for so-called order-execution-only (OEO) dealers that would allow those firms to stray further into the territory of giving advice by furnishing their clients with information designed to inform their decision-making — a void that investors may currently be filling with information from a variety of unregistered sources, including finfluencers, online forums and social media.
Indeed, recent research by the SRO found that about 40% of DIY investors opened their accounts in the past couple of years, and that these investors are much more likely to rely on social media and other unregulated online sources of investing information.
In response, CIRO is proposing changes to its guidance that, it said, “will support and protect a greater number of investors through the delivery of regulated, non-tailored financial information via new tools such as self-assessment, filters and model portfolios…”
It also contemplates allowing dealers to use alerts that would warn investors about purchases of potentially-risky securities, which could serve as a “speed bump” for investors.
“Our objective is to enhance investor protection by ensuring access to high-quality information from verified sources and allowing the use of tools designed to help investors make better investment decisions,” CIRO said in a notice setting out its proposed approach — adding, “This initiative aims to ensure that such advice does not diminish the value of established, robust advisory channels, thereby preventing any potential confusion between the two.”
Under current guidance, OEO dealers are already able to provide some information and tools to DIY clients, but CIRO noted that some dealers are cautious about the limits of the SRO’s expectations in this area — particularly when it comes to pushing information out to investors. Some fear that this could be construed as straying into the provision of recommendations.
And, CIRO said that it also shares the Ontario Securities Commission’s concerns about how the restrictions on the kind of advice that OEO dealers provide may be driving investors to other sources of information, such as social media, that are unregulated and may be misleading to investors.
In response, CIRO said that it is, “… committed to considering new policies that expand the advice options available to investors across CIRO-regulated firms.”
To start, it’s proposing to revise existing guidance for OEO dealers.
“Our preliminary view is that significant changes to some of the terminology in the OEO guidance are warranted,” it said.
Among other things, it’s aiming to clarify that providing information to investors is allowed, as long as it doesn’t push client-specific advice.
“We believe the key distinction should be whether the advice is non-tailored and intended to assist clients in making better decisions for themselves,” CIRO said. “Additionally, we consider it beneficial to revisit the lists of examples of permitted tools to provide OEO dealers with a reasonable degree of certainty regarding the regulatory intent of the revised guidance.”
The proposed revisions are out for comment until Feb. 26, 2025.
“Being able to provide DIY investors with appropriate tools and information as well as a ‘speedbump’ alert if they are about to purchase a high-risk security or remind them that their cash accounts could be doing more for them by being invested, is something that many dealers want to offer. We see it as a win-win because it ensures investors can access high-quality financial information when and where they need it and also have certain protections in place,” said Alexandra Williams, senior vice-president of member regulation and corporate strategy at CIRO, in a release.
“Considering the popularity of DIY investing, updating the OEO guidance to clarify and enable certain forms of non-tailored advice will have a material impact on investors simply by improving the quality, kind and frequency of information available, so they can make better decisions for themselves,” she added.