The Toronto-based Ontario Securities Commission (OSC) held its third roundtable discussion Tuesday on the proposed adoption of a best interest standard.
Part of the discussion focused on the possible implementation of such a standard, or possible alternative actions regulators could consider. While panelists disagreed as to whether a standard is truly best for the securities industry or not, everyone believed there were several issues, from fees to enforcement, regulators must address to improve investor protection.
If a best interest standard is introduced, regulators need to have stronger rules around titles and designations, said Connie Craddock, an OSC Investor Advisory Panel (IAP) member, who spoke in favour of adopting a best interest standard. Otherwise, in Craddock’s view there is no point in introducing a higher standard.
“With the current regulations, [advisors] can call themselves, senior retirement specialist, vice president, there doesn’t have to be any connection particularly between the title and the scope of services and the proficiency standards underlying it,” said Craddock.
While the Investment Industry Regulatory Organization of Canada (IIROC) has done some work with a recent notice on the need for meaningful description and type of services and investment products that a representative can offer to clients, Anita Anand, professor and academic director, centre for the legal profession and program on ethics in law and business, University of Toronto, also said regulators need to spend more time on these issues.
“I would like to see more focus by the regulators on designations,” she said, “and looking at requirement to earn and maintain these financial designations.”
Fees are another area that regulators could spend more time focusing on, according to several participants, including panelist John Fabello, partner, litigation, Torys LLP. Fabello is against the introduction of a best interest standard, arguing that the current common law standard is sufficient. However, he does believe that there needs to be clearer discussions around fees.
“Make advisors disclose exactly what the fees are,” said Fabello. “If they are recommending a product that has a higher fee, explain to the client why, in their view, notwithstanding the higher fee this is a better product for them.”
For some panelists, the best thing to do in looking at the best interest debate is simply to wait. Canada is typically a little slower to adopt new regulation and that can work to our advantage at the moment, said Jim Kershaw, senior vice president, regional manager, Ontario main, TD Wealth Private Investment Advice.
“We have an opportunity to examine the petri dishes that exist in other parts of the world [Australia and the United Kingdom],” said Kershaw, “and to actually get a sense for whether it’s actually going to work.”
A possible alternative to the adoption of a best interest standard, put forward by panelists, is tighter enforcement and tougher repercussions for advisors who run foul of regulations. Right now, many “bad advisors” are able to stay in the industry, said Kershaw, and regulators should be making it easier to have those individuals leave the industry.
“The vast majority of advisors in the industry put their clients interests ahead of their own each and every day,” said Kershaw. “And yet for those that don’t, they often find a way to go down market a little bit in the securities industry and reappear to do it again and again.”
Fabello argued for stronger enforcement to deter “truly bad actors” through such actions as an increase in damage awards and the creation of statutory cause of action.