Financial advisors and the broader investment industry are facing a host of regulatory changes this year, and the Investment Industry Association of Canada is helping firms prepare to comply.
Looming regulatory developments include the introduction of new rules governing client-advisor relationships, the second stage of the mutual fund disclosure reform initiative, new U.S. tax-reporting and withholding requirements for financial institutions, and ongoing efforts to establish a national securities regulator, among others.
The IIAC has participated in consultations on most of these issues, and will continue to do so as they advance this year.
“We would be advocating for the most efficient rules that we can get,” says Ian Russell, president and CEO of the IIAC. The association also helps firms develop the policies and procedures necessary to comply with new rules and regulations that arise.
Near the top of the IIAC’s agenda for 2012 is the Client Relationship Model – a new set of rules from the Investment Industry Regulatory Organization of Canada that are expected to be finalized in the weeks ahead. The rules deal with investment process disclosure, conflicts of interest and suitability reviews, among other aspects of advisor-client relationships.
Having participated in consultations throughout the process of establishing the rules, Russell believes the new rules are practical, and will have a positive impact on client-advisor relationships.
“When you formalize all of these rules, you’re going to bring a greater discipline to the process,” he says. “Many of the rules are already being followed by most of the firms, but not in a formal rule sense, where there is strict oversight. That’s going to strengthen the process, in terms of disclosure and the interaction with the client.”
With the rules nearly finalized and set to be phased in over the course of about a year, the industry has plenty of work to do in preparing to comply with them.
“I still think the industry has got a way to go,” Russell says. “We’ve got to get out there with an awareness campaign as soon as we know exactly what the rules are, and to get our members moving fairly quickly, because a year goes by pretty fast.”
New mutual fund disclosure rules are also expected to take effect this year. The first phase of the new regime was implemented last year, requiring mutual fund companies to make new Fund Facts disclosure forms available on their websites.
“That’s been a huge plus in the market,” Russell says, explaining that investors are more likely to read a two-page plain-language document than a detailed prospectus document. “I think that contributes very positively to investor protection.”
Under the next stage, firms will deliver the new forms to clients after they’ve purchased a fund, in place of the prospectus. The IIAC is helping firms understand what this requirement means for them. It’s also monitoring developments on the third stage of the regime, which will require the new form to be delivered at the point of sale. This rule won’t likely take effect anytime soon, according to Russell.
“I think it’s going to take further discussion,” he said. “The trouble is that clients very often want to make transactions very quickly, and it becomes a very difficult process from a practical standpoint.”
Other issues on the IIAC’s radar this year include: the U.S. Foreign Account Tax Compliance Act and its impact on Canadian financial institutions, the looming introduction of Pooled Registered Pension Plans, and the national securities regulator.
Even though the Supreme Court ruled in December that the federal government’s proposed federal securities legislation was unconstitutional, Russell is confident that the government will make the necessary changes to the proposed legislation, and will eventually gather adequate provincial support.
“I’m optimistic that they will be able to move the agenda forward to achieve what they wanted, which was the single regulator,” he says.