CSA asks if they should regulate designations

By Andrew Rickard | April 28 2016 02:14PM

The Canadian Securities Administrators (CSA) have released their consultation document on how better to regulate financial advisors so that their own interests are more in line with those of their clients.

CSA consultation paper 33-404, Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients, was released on April 28 and outlines the various obligations that financial advisors owe to their clients.

The 58-page paper points to prior studies (such as the one conducted by York University professor Douglas Cumming last year) which suggests that clients "are not getting the value or returns they could reasonably expect from investing". What's more, the regulators have identified an "information asymmetry" between advisors and their clients; most clients have limited financial knowledge but they are confronted with increasingly complex products. As a result, the CSA says the onus to make sure that clients understand their investments "should shift onto registrants".

Conflicts of interest

The target reforms would require, among other things, dealers and advisors to improve the way they monitor and handle conflicts of interest. The Know-Your-Client rules would also be revamped and advisors would have to collect more information as part of the process: they would need to understand not only their client's time horizon and risk profile, but also their financial circumstances in general, including the amount and nature of all their assets and debts, their employment status, basic tax position, as well as the status and needs of their spouse and dependents.

"Do all registrants currently have the proficiency to understand their client’s basic tax position?" asks the CSA in the document. "Would requiring collection of this information raise any issues or challenges for registrants or clients?"

Professional designations

The CSA are also looking at the way advisors use professional designations. "No representative should hold him or herself out to the public in any manner that deceives or misleads, or could reasonably be expected to deceive or mislead, a client or any other person as to his/her proficiency, qualifications or scope of product or service offering," say the regulators. "This includes using designations in client facing communications."

To deal with the issue, the CSA is asking if they should either regulate specific designations themselves or require dealers to review and validate the designations used by their advisors.

These are just a few of the highlights from the paper. The entire document can be downloaded from the Ontario Securities Commission web site.

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