Dramatic changes in the regulatory environment over the past few years have been challenging for financial advisors — and the regulators know it.
“It has become harder to do your job. Regulation has raised the bar and put more burden on the day-to-day job,” said Andrew Kriegler, president and CEO of the Canadian Investment Regulatory Organization (CIRO), at the Advocis Symposium in Toronto on Monday.
Anthony Giglio, president and CEO of Quadrus Investment Services, said on the same panel that the definition of “compliance” has evolved significantly thanks to the client-focused reforms (CFRs).
“Disclosing away conflicts used to be an acceptable practice,” Giglio said. Now that advisors need to eliminate or manage those conflicts under the CFRs, “that’s a major change in perception.” Further, the requirement for advisors to provide evidence for advice given is another significant departure in compliance philosophy, he said.
But panellist Jean-Paul Bureaud, executive director of FAIR Canada, said most clients expect their advisors to resolve conflicts in their best interests, regardless of what the rules are.
Unfortunately, an August report released by the Canadian Securities Administrators and CIRO found that most firms are falling short of conflicts-of-interest compliance.
Two-thirds of the 172 firms reviewed had sub-standard policies and procedures for dealing with conflicts. Conflict disclosure fell short at over half (53%) of the firms they reviewed, while more than one-third (34%) failed to recognize one or more material conflicts.
The report represents the first round of reviews on this front, Kriegler said, and CIRO is sympathetic to the challenges faced by both firms and advisors.
“A lot of firms are doing a really good job. This [report] was highlighting that not everybody’s perfect.” he said. “Well guess what? We just put the rules in. I think a little bit of reality has to kick in here; it’s a journey. There are areas where improvement is needed — some more urgently than others. But that’s unsurprising, given the path we’ve been on.”
Moderator Ellen Bessner, commercial litigator with Babin Bessner Spry LLP, encouraged registrants to read the August report and look for ways to improve their compliance with rules. “The next audit on conflicts of interest may not be so forgiving and might go straight to enforcement,” she said.
In terms of other initiatives, Bureaud praised the self-regulator for prioritizing its investor advisory panel as well as the Office of the Investor. Bessner said she hoped CIRO’s deal with the Autorité des marchés financiers to take over registration of mutual-fund reps in Quebec would be replicated across Canada.
Kriegler said changes to the continuing education (CE) platform are coming, but not imminently, especially as the first mutual-fund CE cycle is ending this year and CIRO is working on a new proficiency model.
“As that [proficiency revamp] comes to a close over the course of the next year, we’re going to circle back on CE across the entire system. So don’t worry — it’s not going to change tomorrow or next week, but over the course of the next year or two.”
Bureaud said he hopes the advice environment will eventually reach a point where “the investor is getting the same kind of standard of service and care, irrespective of who they’re dealing with.”
He added that regardless of a rep’s registration, there should be “a common standard in terms of how they’re treated and the quality of their advice and services.”
Kriegler said CIRO understands what registrants want from the new self-regulatory organization: “You want us to fill the gaps that exist, you want us to reduce the duplication and overlap, and you want us to bring simplicity to where there is needless complexity.”
To get there, CIRO is trying to create “a system that works well for the overwhelming majority of circumstances and sets a reasonable standard,” he said. “One of the ways we have to make the system better is to enable more access to advice for Canadians. And the only way we’re going to get there is by being able to make the regulatory system scale [up].”