​Fiduciary duty debate takes another turn down south

​Fiduciary duty debate takes another turn down south

​Fiduciary duty debate takes another turn down south In the US, UK and Australia attempts to apply a “fiduciary duty” to advisors have resulted in an ongoing tug-of-war between regulators and the industry.

In Australia a previous Labour government had brought in tough new regulations on advisors. But the new requirements are about to be reversed on July 1st. As well, in the U.S., the U.S. Securities and Exchange Commission has recommended a uniform standard be introduced for broker-dealers and investment advisers, but the proposals have been stymied by pushback from the industry. A similar back and forth over the duties of advisors is playing out the UK.  

In the case of Australia the current government seems set to abolish a 'catch-all' provision for advisors to act in the best interests of their clients. Critics say the move would reverse some of the tighter regulations imposed by the Labour government.  "The government's proposals, lobbied for by banks and financial planners, will create caveats and loopholes,'' a critic was quoted as saying.

But as the debate over fiduciary duty goes on in the wider English-speaking world, the debate in the great white north has been put off as the new regulations on customer relationship management—the so-called CRM2 regulations—work through the system.

The new CRM2 regulations will revamp the relationship between client and advisor, so it doesn’t really make sense to debate the status of advisors until it is seen how the new regulations play out. "The debate over fiduciary duty is in the background right now. Everyone is focused on CRM2. There is lots of work to be done on that," says Sara Clodman, senior manager of public affairs at IFIC. 

A discussion paper on the issue was floated a while ago by Canadian securities regulators. Comments were issued and published, which is where the debate stands. Until CRM2 works out, there is not much sense in revisiting the issue. “It might come back as an issue. But we'll have to see how CRM2 plays out," says Clodman.

That said, the Canadian situation is considered unique compared to the other major English-speaking countries. A legal analysis of obligations of financial advisors concluded that Canada's regulatory system is “thorough, progressive and in many cases superior to those of the United States, the United Kingdom and Australia” when it comes to obligations on an advisor to act in a clients’ best interest.  

Torys LLP prepared a 57-page document on the issue at the request of the Investment Funds Institute of Canada and the Investment Industry Association of Canada when Canadian Securities Administrators issued consultation paper 33-403, “The Standard Of Conduct For Advisers And Dealers: Exploring The Appropriateness Of Introducing A Statutory Best Interest Duty When Advice Is Provided To Retail Clients.”

At the time, the paper’s author, Torys Partner Laura Paglia, said "The terms 'fiduciary' and 'best interest' are over-used, casually and interchangeably, to describe a wide range of possible and unclear obligations…When we looked at the content of the obligations of investment advisors in the U.S., the U.K. and Australia, we found that none of these jurisdictions have, or are considering, more onerous requirements than those already in place in Canada.”