From the Regulators

Andrew Kriegler also pointed out during a discussion that the words “best interest” are already an integral component of IIROC’s rules

By Patricia Chisholm |

 

If the Canadian Securities Administrators' (CSA) proposal to ban embedded commissions were to be adopted, "the focus has to be on how the transition is made" to ensure unintentional harm is avoided with such a profound shift, said Andrew Kriegler, president and CEO Investment Industry Regulatory Organization of Canada (IIROC) at the Investment Industry Association of Canada's annual business operations and compliance symposium in Toronto on Tuesday.

Perhaps central to that concept of hidden harm is the common concern in the investment industry that banning embedded commissions will do little to solve compensation-related conflicts of interest, while hurting small investors. That's because, the industry has argued, small investors are unlikely to pay the more visible fees that would replace embedded commissions and thus would fail to obtain the financial advice they need.

"That is, potentially, a pretty patriarchal point of view, saying that people can't make good decisions on their own," Kriegler said, adding that if that's the basis of the argument being made in opposition to a ban, then "we should have the debate on that point, visibly."

In other words, predicting widespread consumer failure to seek advice if more visible fees are charged is not enough; the reasons why consumers would make that decision need to be fully explored before a decision is made on that basis.

Read: Ban on embedded commissions could take toll on non-bank dealers

Kreigler also commented on the swirling debate over whether a statutory best interest standard should be imposed on the investment industry. (Securities regulators in Ontario and New Brunswick are strongly in support of it.) Specifically, Kriegler noted that his initial perusal of IIROC's rules when he took over the helm about three years ago revealed that the words "best interest" are an integral component of those rules.

"If a registrant is in a conflict of interest with their client, it has to be resolved fairly, transparently and in the best interest of the client; that exists there today," he noted, paraphrasing the rule. "We think the core of the best interest debate is all about conflicts."

The CSA has added what Kriegler called a "penumbra" around that core, "but we … have rules that use those words [best interest] and they have been in place for years."

Kriegler declined to get drawn into the debate on the best interest standard among the members of the CSA, but noted that IIROC has recently taken steps to review industry practices in this area with a view to providing practical guidance to dealers, identifying good practices and others where improvements are clearly needed.

Watch: CIFPs 2017: Best interest standard must have two tiers

IIROC is currently focusing, Kriegler added, on "what we can do today, with the industry, given our delegated responsibilities, in a way to help the industry comply [with the current rules]."

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