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OSC to focus on investor protection and advisor compensation

par Andrew Rickard | March 14 2016 01:38PM

The Ontario Securities Commission (OSC) has revealed where it plans to focus its efforts during the next twelve months, and investor protection and advisor compensation are at the top of the list.

The OSC's draft statement of priorities, which was released on March 10, notes that low interest rates are forcing older Canadians to look for ways to earn better returns on their investments. "This push for higher returns can expose them to investment risks, including increased leverage that can have life-changing outcomes," says the OSC.

As a result, Ontario's securities watchdog says it wants to see a number of improvements in financial services industry, and the regulator is paying particular attention to how financial advisors are paid.

Compensation can have an effect on sales

"Weak compliance systems in combination with poor compliance cultures at firms can result in inappropriate advice and unsatisfactory investor outcomes," reads the document. "Where successful achievement of investment objectives is not a shared outcome between advisors and investors, investor trust and confidence in the financial system is lost."

The OSC notes that Professor Douglas Cumming's report on mutual funds, commissioned by the Canadian Securities Administrators (CSA) last year, found that compensation can have an effect on sales — in some cases to the detriment of the investor. "This research, together with other available research, industry data and feedback from stakeholder consultations and our mystery shopping initiative, will inform our deliberations and be used to support a policy recommendation on how best to move forward," says the OSC.

The regulator says its priority is now to implement regulatory reforms that will “improve the advisor/client relationship”. Its next step will be to publish and conduct consultations on proposals that will create a "best interest standard" for the industry. The OSC also plans to determine "what regulatory action is needed to address embedded commissions and other types of compensation arrangements and improve retail investment product disclosure."

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