FAIR Canada calls for ban on trailing commissions

By Andrew Rickard | October 25 2016 11:30AM

The investors rights group FAIR Canada says the Canadian Securities Administrators' (CSA) proposed best interest standard for advisors does not go far enough.

The CSA released consultation paper NI 31-103 earlier this year. It recommends increasing the obligations that advisors and dealers have towards their clients. At the heart of the proposals is a standard which would require intermediaries to always act in the best interest of their clients. Advisors and dealers would have to avoid or control conflicts of interest, and also provide "full, clear, meaningful and timely" disclosure.

Consumers would be best served

In its submission to the CSA, FAIR Canada argues that consumers would be best served by a standard that is "articulated clearly and unequivocally in legislation". In particular, the investor rights association wants to see an explicit ban on commissions. "A critical part of a statutory best interest standard is a prohibition on conflicted remuneration," says FAIR. "Trailing commissions and other misaligned incentives must be prohibited."

The rules governing outside business activities be changed

Another recommendation is that the rules governing outside business activities be changed so that the dealer will be on the hook should things go wrong. "Firms should be liable for the harm resulting from the acts and omissions of their representatives with respect to all outside business activities, except (i) where the activity could not reasonably be viewed as part of the firm’s business; (ii) the firm has made is explicitly clear to its clients that the activity is not part of the firm’s business and the firm will not be responsible," says FAIR.

These are just a a couple of highlights from the submission. The complete document is available on the FAIR Canada web site.

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