In a surprising result, a vast majority of investment advisors surveyed for Investment Executive's 2017 Brokerage Report Card are in favour of a proposal from the Canadian Securities Administrators (CSA) to introduce a "best interest" standard for advisors. However, many of those advisors still have misgivings regarding what the introduction of such a standard would mean for their businesses.
A year ago, the CSA released a consultation paper on a number of reforms, including the introduction of a statutory best interest standard. (The B.C. Securities Commission is the only provincial regulator not considering implementing such a standard.) The CSA has yet to make a final decision on the proposed reforms.
Meanwhile, most of the investment industry takes issue with the CSA's proposal. Industry associations such as the Investment Industry Association of Canada and the Portfolio Management Association of Canada have raised concerns that the proposal is too general and could, in fact, lead to problems for some advisors and confusion among clients.
In light of the debate about this proposal, advisors were asked in a supplementary question added to this year's survey if they're "in favour of the CSA's proposal to introduce a best interest standard to the rules governing the client/registrant relationship." Eighty-nine per cent of advisors responded to this question; 71% of them said they do support such a measure.
"In my mind, [the standard] should have been in place years ago," says an advisor in Alberta with Calgary-based Leede Jones Gable Inc. "It makes [the industry] an even playing field."
In fact, many advisors who support the proposal remarked on the need to elevate industry standards across the board and increase the transparency of client/advisor relationships. A common refrain from advisors regarding why they support the best interest standard proposal, however, was that they and their firms already adhere to such a standard - or to a higher standard.
"Our firm is taking a leading role in having fiduciary responsibility [in this matter]," says an advisor in Alberta with Toronto-based Richardson GMP Ltd. "Being a leader in that area is important to us."
Richardson GMP received a certification for fiduciary excellence from the Centre for Fiduciary Excellence in Toronto in 2012. This certification, which applies to the firm's managed accounts business, demonstrates that the investment dealer has the processes and policies in place to create a repeatable, quality client experience in a fiduciary relationship.
Andrew Marsh, Richardson GMP's president and CEO, says he's in favour of the CSA's proposal, but notes that regulators must be careful in how they implement the best interest standard.
"While the best of us are always supportive of something that manages the lowest common denominator, which therefore makes our industry better," says Marsh, "I'm concerned with what unintended consequences come from that."
Advisors are aware of these challenges. In fact, many advisors, whether they support the CSA's proposal or not, are concerned about how the proposal would affect their clients and businesses once implemented.
"In theory, yes, [I agree with implementing a best interest standard]," says an advisor in Ontario with Mississauga, Ont.-based Edward Jones. "[But regulators] are going to botch it."
Adds an advisor in British Columbia with Toronto-based CIBC Wood Gundy: "How do you enforce [such a standard] and make sure it works in a positive manner?"
In a letter to the regulators, Wood Gundy's parent bank, Canadian Imperial Bank of Commerce, expressed similar misgivings about the proposed standard: "CIBC has concerns about the CSA's proposal to impose a technical, statutory best interest duty because it may harm investors and market participants without providing any tangible benefits."
Many of the advisors who are opposed outright to the implementation of a best interest standard voiced similar concerns. Twenty-nine per cent of advisors disagreed with the CSA's proposal; most of them worry that such a standard will do more to hinder than to help advisors' businesses.
"I'm in favour of anything in the client's best interest, but not in favour of regulation for the sake of regulation," says an advisor in Alberta with Toronto-based TD Wealth Private Investment Advice. "The business needs to be allowed to breathe. We need a balance between allowing the business to be successful and keeping it well regulated."
Some advisors said regulators should wait for the full effects of the new requirements under the second phase of the client relationship model (CRM2) to be felt. Still others felt the proposal is an overreaction on the regulators' part.
Says an advisor in Atlantic Canada with Toronto-based BMO Nesbitt Burns Inc.: "The problem is that regulators basically view advisors as crooks and clients as idiots due to some bad apples in our industry."
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