From the Regulators

The regulator is looking for comments on its Draft 2014-2015 Statement of Priorities

By James Langton |

The Ontario Securities Commission (OSC) says that it aims to make a decision on whether to ban embedded commissions or not in the coming year.

The OSC released its 2014-2015 draft Statement of Priorities on Thursday, which sets out its plans for the year ahead.

Among a host of issues, the most prominent for advisors is the ongoing work on the quality of investment advice, particularly whether embedded commissions should be eliminated, and whether a fiduciary duty should be imposed on advice.

The regulator is more definitive on the issue of mutual fund commissions, saying that it expects to reach a decision on whether to ban embedded commissions, cap them, or leave them untouched. To that end, it says a "Staff notice setting out key findings and status will be published by early 2015."

To inform that decision, in the year ahead, the OSC is pledging to complete third-party research to determine whether different forms of compensation, such as embedded commissions, influence advisor behaviour. It says that the research will aim to quantify how much compensation for distribution affects fund sales, and to evaluate whether fee-based compensation affects advice and improves long-term results.

It's more equivocal on the issue of whether a fiduciary duty should be imposed on financial advisors. While it says that the topic is still being studied, the OSC indicates only that it expects to complete its research in this area, evaluate options, and publish preliminary recommendations.

It also expects to publish a report on the results of the mystery shop of advice that's being carried out in conjunction with the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA), which will include issuing guidance on what constitutes non-compliant advice, compliant advice and good advice.

However, for the time being, it also appears to endorsing the current suitability standard, which investor advocates argue is inadequate. "The OSC must try to ensure that the reliance by investors on their advisers is well placed by setting standards and overseeing that the advice being provided is suitable and that any conflicts are managed appropriately," it says.

And, it notes that the results of the mystery shop will be used to "inform targeting of future OSC suitability sweeps and best interest duty policy development", which suggests that the suitability standard isn't going anywhere in the near future.

Additionally, the OSC indicates in its draft priorities, that it aims to encourage the "expansion of product choices across distribution platforms", but it doesn't provide any specifics on that item. It also notes that with the provincial government examining the need for financial planning regulation, it will "work with the government as this initiative evolves."

Next: Other policy areas to receive attention