Securities regulators are finally adopting reforms to the rules surrounding the client-advisor relationship that have been in the works for years.
The Investment Industry Regulatory Organization of Canada announced Monday that it has received approval from the Canadian Securities Administrators to begin implementation of its Client Relationship Model, a comprehensive reform package designed to enhance the relationship between investors and their financial advisors.
The reforms, which began life as the Ontario Securities Commission’s Fair Dealing Model initiative back in 2000, aim to increase transparency for investors surrounding the fees they pay, the services they receive, potential conflicts of interest and the performance of their accounts. Some of the new requirements take effect immediately, while others will be phased in over the next two years.
“The Client Relationship Model is an important initiative that will enhance the advisor-client relationship by building on the standard of care required of registered investment professionals and IIROC member firms,” said Susan Wolburgh Jenah, IIROC’s president and CEO. “We have consulted extensively with many stakeholders in finalizing these reforms and will now turn our attention to ensuring they are effectively implemented.”
The new CRM rules will require increased account relationship disclosure, obliging advisors to provide more information to investors on account types, the services they can expect to receive, and the fees and charges they will pay. The rules will also boost suitability assessment standards by requiring advisors to assess suitability more often, particularly when certain “trigger” events occur. Firms will also be obliged to do more to identify, manage, and disclose conflicts of interest. And, they will have to provide clear information on account statements about the cost of investments and their performance.
IIROC published the last version of these reforms in January 2011, and has made some revisions in response to comments received. However, the only material change to those proposals was to remove the requirement for dealers to obtain client acknowledgement of receipt of the relationship disclosure information.
IIROC publishes final version of proposed Client Relationship Model reforms
In new guidance published alongside the rules, IIROC says that it intends for the different elements of the CRM rules to work together and within the existing rules. It says that, wherever possible, the new CRM requirements have been created with the intent of allowing dealers to leverage off of existing processes. However, certain aspects will require firms to develop new systems, “which may pose some significant operational challenges”, which is why it’s allowing a transition period for certain elements of the new rules.
The provisions relating conflict management take effect immediately, as do requirements concerning conflict disclosure for new accounts. The new suitability requirements take effect in six months. Firms will have a year to provide new relationship disclosure information to new clients, and two years for existing clients. The new performance reporting requirements are on hold for now, as the CSA has now begun its own effort to develop enhanced performance reporting rules, and regulators want to ensure their proposals are harmonized.