Although the Investment Funds Institute of Canada (IFIC) supports some of the reforms dealing with client/financial advisor relationships that the Canadian Securities Administrators (CSA) proposed earlier this year, the industry trade group is pushing back on some of the more substantive measures that regulators have put forth.
IFIC released its submission to IFIC on Tuesday ahead of next week’s deadline for comments on the CSA paper published in April that proposes a series of targeted reforms to the existing suitability, know-your-client (KYC) and know-your-product rules, along with new rules for the titles advisors can use, and a possible statutory “best interest” standard.
IFIC acknowledges in its submission that “there is room for improvement” to the KYC and suitability requirements and also expresses support for enhancing proficiency standards and regulating business titles; bringing CSA rules on conflicts of interest in line with existing self-regulatory rules; and enhancing requirements for compliance personnel.
However, IFIC also argues in its submission that certain measures the CSA has proposed, in terms of suitability reform, could “create the expectation that firms will provide financial planning services to all clients, regardless of the client’s actual needs or size of account.”
On the issue of a possible “best interest” standard, IFIC says that it’s seeking “greater clarity” from the CSA on just how this would work: “What would be prohibited under a best interest standard of care that is permitted under the current rule to act ‘honestly, fairly, and in good faith’?”
Indeed, IFIC recommends that regulators focus on enforcing the existing rules already in place. It also suggests that any reforms should focus on improving the investment process, but that they shouldn’t attempt to regulate investors’ results.
In addition, IFIC also argues that regulators should evaluate the impact of recent reforms, such as the client relationship model reforms and new point-of-sale disclosure rules, before undertaking major changes.
“The industry reiterates its long-standing support for placing the interests of the client ahead of the interests of the registrant, where those interests may conflict,” says Paul Bourque, IFIC’s president and CEO, in a statement.
However, Bourque cautioned against “adopting measures that are unclear in their application and may misalign client/advisor expectations.”
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