Financial advisors in Canada are facing an evolving regulatory landscape, but changes won’t be as sudden and drastic as those taking place in other international jurisdictions, regulators said on Monday.

“We’re in an evolutionary process in Canada,” said Bill Rice, chair and CEO of the Alberta Securities Commission, speaking at the second annual Advocis regulatory symposium in Toronto. “It’s going to go slowly.”

This differs from countries such as the U.S., Australia and Britain, where regulatory reform has occurred rapidly in recent years, partly in response to the global financial crisis. The massive Dodd-Frank bill in the U.S., for instance, is an example of revolutionary change, according to Susan Wolburgh Jenah, president and CEO of the Investment Industry Regulatory Organization of Canada.

The industry in Canada has the luxury of being able to implement regulatory changes gradually and carefully, Wolburgh Jenah said.

“We can, in Canada, take the approach that I believe we’ve always taken, which is an evolutionary, deliberative, careful, consultative approach to regulation and to change,” she said. “I believe that for Canada, that is an advantage.”

No need to ban commissions in Canada

This gradual approach is critical in order to avoid unintended consequences that can result from regulations that are adopted too quickly, according to Greg Pollock, president and CEO of Advocis. He said before regulators impose new rules, they should first determine which specific problems they hope to address, and should consult all industry stakeholders on any potential solutions.

Pollock also urged regulators to avoid adopting regulations simply because other international jurisdictions are doing so.

“We must not institute change because others have,” he said.

In particular, he said Canadian regulators shouldn’t move to ban commissions on investment products simply because this has been proposed in Australia and Britain. He said the current system of allowing consumers to choose between paying fees and commissions works well in Canada.

“I think that there is more than one business model that can meet the needs of consumers and advisors,” he said. “In Canada then, I see no need for the reforms we are witnessing in the U.K. and Australia.”

Rice said he doesn’t expect any dramatic changes to regulations related to the compensation of financial advisors in Canada. However, he said it may be necessary to review compensation practices to ensure that value is being rewarded.

“If an advisory-investor role is to work properly, the compensation scheme has to be built so that the advisor or the intermediary is truly being compensated for value,” Rice said. “I believe that’s the fundamental principle that should be focused on.”

Even with no major changes in store for Canadian regulations, the regulators said that advisors should expect smaller, gradual changes in the next few years.

“I’m not aware of pending dramatic changes,” Rice said, “but that’s not to say that things are not changing and that you’re aren’t going to be working in a different environment going forward.”

Disclosure is one area that will likely evolve substantially. Rice said most investors fail to read product disclosure documents, and have poor understanding of the way products work. He expects regulators to impose greater responsibility on advisors to communicate accurate information to clients.

“I think the only answer for us is to rely on people who will have the expertise, the time and the incentive to understand products and to convey their understanding to investors,” he said.

IE