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Complex new products raise the issue of consumer protection

By Rosemary McCracken | January 24 2012 08:53PM

The complex array of investment products that have recently come onto the market has raised the issue of consumer protection among securities regulators. Mary Condon, vice-chair of the Ontario Securities Commission, told Advocis’s third annual symposium in November that the OSC is monitoring new products that have entered the marked to make sure that the disclosure information provided for investors is adequate. “Financial regulators are now required to evaluate the perimeter of the market and change established approaches if they don’t protect investors,” she said. “We want to make sure we have the capacity to stay current with new market developments.”

In a panel on investors and advisors, Curtis Findlay, president of Compass Financial Planning Services Ltd. in Canmore, Alta., noted that a number of factors have triggered the creation of new products, including the aging population, market volatility, sustained low interest rates and the media’s attacks on mutual fund fees.

Selecting the right products
The chairman of Advocis’s sub-committee on investment, Mr. Findlay made a number of suggestions to assist advisors in selecting the right products to meet their clients’ needs.

Know your product. “Many advisors don’t know what they’re selling,” he said. “When the Mutual Fund Dealers Association says, ‘Know your product,’ they’re right. It’s not the dealers’ responsibility to know the product; it’s the advisors’ responsibility.”

Don’t become reliant on intermediaries. “Just because they offer a product or a service, that doesn’t mean it’s for your client. Find out the history of the supplier. There are a few players out there who get it wrong over and over.”

Does this product fit your business practice? “If you can’t service it, you shouldn’t be selling it.”

Does the product fit your business profile? Advisors who have built their businesses on special areas of expertise, such as tax-planning strategies, need to make sure the products they offer clients fit this profile.

Can you explain the tax implications or other advantages of a product to the client in a way that he understands?

Is the product portable within the industry?

Do incentives that the product’s manufacturers offer compromise your ethics? “We disclose any incentives to the client and have him sign off on them. Over-disclose.”

Do you have access to the product’s current value? “It’s not great if an advisor has no idea how a client’s investment is doing.”

Is the product liquid? “Or will the client have to wait for months to get his money from the investment?”

What are the redemption fees? “Understand the supplier’s calculations so that you can explain them to the client.”

What is the product’s risk rating? Mr. Findlay also suggested that advisors shrink their product offerings so they can keep up with all products that they offer their clients.

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