Commenting on the CSA’s Consultation Paper 33-404: Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives toward Their Clients
, the IFIC has asked regulators to focus on enforcement of existing rules and changes that would improve the investment process without regulating investment outcomes.
"The industry reiterates its long-standing support for placing the interests of the client ahead of the interests of the registrant, where those interests may conflict," said IFIC president and CEO Paul C. Bourque, adding that regulatory framework changes should adjust to new standards for investor protection and market developments without “adopting measures that are unclear in their application and may misalign client-adviser expectations.”
The IFIC’s submission calls out the consultation paper’s exclusion of “findings related to the benefits that registrants may provide to their clients, for example, with respect to increased savings”. Bourque said that the CSA’s proposed requirements should be “designed considering their impact on the full scope of the client-advisor relationship.”
The group would like the CSA to focus on the impact of CRM2 and Point-of-Sale reforms on registrant and client behavior,as well as how market forces are shaping product and service offerings, distribution, and pricing. They also point out that additional reforms introduced now will skew the CSA’s recently launched multi-year research project to “measure outcomes (of CRM and Fund Facts) related to investor knowledge, attitude, and behavior, registrant practices, and fund fees and product offerings.”
While the IFIC agrees that KYC and suitability requirements can still be improved, it finds that the proposed suitability requirements may create an expectation that firms will provide financial planning services to all clients regardless of their needs or account size – a situation which they fear would significantly increase costs and potentially make servicing most accounts with less than $50,000 uneconomic for firms.
The group also notes that requiring firms to offer for sale and recommend only the product that would most likely meet its clients’ investment objectives would necessitate the regulators’ deciding on the investment products that will meet each individual client’s needs. Instead, the IFIC suggests that the CSA strengthen the national instruments to mirror the more onerous requirements put in place by the SROs.
The paper’s proposal to introduce a regulatory best interest standard of care was also called into question, with the IFIC asking for clarification on “what would be prohibited under a best interest standard of care that is permitted under the current rule to act 'honestly, fairly, and in good faith'.”
Aside from highlighting other areas of concern, the submission comes with a workbook with detailed responses to the CSA’s 68 questions, as well as a research addendum analyzing limitations of the evidence behind the CSA’s proposals and summarizing six recent studies that quantitatively address the value of advice.
Impact of CRM2 and POS amendments to be measured
Deadline for comments on CSA proposals extended