The British Columbia Securities Commission (BCSC) disagrees with the Canadian Securities Administrators’ (CSA) proposal to create a best interest standard for financial advisors.

Last week, the CSA released a consultation paper NI 31-103, Proposals to Enhance the Obligations of Advisers, Dealers and Representatives Toward Their Clients. At the heart of these proposals is a best interest standard which would require advisors and dealers to "deal fairly, honestly and in good faith” with their clients. To conform to this standard, advisors would be required to both disclose and avoid or control conflicts of interest (e.g., those arising when recommending a product that pays a higher commission than a similar one).

While the BCSC says it supports the various targeted reforms proposed by the CSA, on April 28 the regulator issued a statement expressing concerns about how this best interest standard would be applied.

Over reliance by clients on registrants

"The BCSC believes that the overlay of the proposed best interest standard is not workable in the current regulatory and business environment, and may cause investors to think registrants have an unqualified duty to act in their best interests, not understanding that some conflicts would still be permitted. This may exacerbate one of the investor protection issues identified by the CSA – over reliance by clients on registrants," says the BCSC. "Implementing only the specific targeted reforms will meaningfully and practically address problems in the client-registrant relationship identified by the CSA, and will provide regulators with the tools necessary to ensure compliance and pursue enforcement action, where necessary."