A recent report by the Ontario Securities Commission
(OSC) airs concerns about the quality of advice being offered to seniors and other vulnerable investors. In the same report, the OSC identifies other inappropriate practices that registrants should correct.
According to the OSC’s Annual Summary Report for Dealers, Advisers and Investment Fund Managers
, compliance reviews have revealed instances wherein advisors failed to provide proper services or products to vulnerable investors. The regulator expressed particular concern over the treatment of seniors, and is developing guidelines and best practices for registrants who provide advice to older clients. "In the interim, we remind you that you are responsible for the adequacy of your firm’s policies and procedures for the protection of investors, including vulnerable investors," says the OSC in its report. "You should assess your firm’s business model and policies and procedures."
The regulator also identified inadequate collection, documentation, and updating of Know Your Client (KYC) information as an issue, saying that it “continues to be a significant and common deficiency" in the industry.
Compliance reviews found delinquent advisors who did not collect data about their clients’ other investments, among other pieces of critical information. Without such information, the OSC cautions that "a registrant does not have an adequate understanding of the client’s financial situation and whether the proposed transaction may result in undue concentration risk in securities of a single issuer, group of related issuers, or industry."
Inappropriate use of client testimonials was another point of scrutiny.
While the use of testimonials is not prohibited under Ontario securities law, the OSC reminds advisors to ensure that they are balanced, fair, and not misleading. "Registrants should be able to substantiate all claims that they make in their marketing materials," reads the report. "Further, there is a risk that misleading or inaccurate testimonials will be communicated to investors, unless the registrant has procedures in place to conduct an adequate review and approval of the use of testimonials."
The 99-page report touches on many other instances of non-compliance and poor practice among registrants, and advisors are “strongly encouraged” to refer to the report so they can better understand their obligations.
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