The Canadian Foundation for Advancement of Investor Rights (FAIR Canada) is calling on the Canadian Securities Administrators (CSA) to clarify how firms can resolve conflicts of interest of clients under four common scenarios.
In an open letter, FAIR Canada asks the CSA to explain how firms will be expected to comply with the client-focused reforms proposed in June, which aim to incorporate best interest requirements into a number of CSA rules.
The investor advocacy group is seeking to “better understand how firms must address” certain common conflicts in the best interest of clients, the letter states, and how the CSA will ensure that firms are properly addressing conflicts “from a compliance and enforcement perspective.”
Specifically FAIR Canada seeks the CSA’s views on four common conflict of interest scenarios:
- embedded commission mutual fund dealers that only sell proprietary funds;
- commuting the value of a pension;
- leveraged investing; and
- exempt market dealers that only deal in the products of related issuers.
“FAIR Canada has long advocated for a statutory best interest standard so that Canadians receive objective, professional financial advice. Of key importance to successful implementation of a best interest standard is the adoption of rules that prohibit embedded commissions and other advisor compensation arrangements that foster the misalignment of client and advisor interests,” the letter states.
“This is necessary to ensure that registrants provide their services in a manner that does not actively jeopardize or subvert the interests and well-being of their clients since an abundance of evidence has clearly demonstrated that compensation drives behaviour.”
The CSA’s client-focused reforms are currently out for public comment until Oct. 19.