The Ontario Securities Commission has launched consultations on its proposed fair dealing model with a new interactive website.

The OSC is consulting on the proposed Fair Dealing Model by issuing a report for comment by industry experts. As well, to solicit feedback from investors and front-line investment industry staff, the OSC unveiled an interactive web site that uses the latest animation software to bring client-advisor interactions to “virtual life”.

The proposed model describes a new relationship between investors and their advisors. It focuses on three basic relationship models: the
Managed-For-You Relationship, the Advisory Relationship and the Self-Managed Relationship.

The Managed-For-You relationship puts primary responsibility on the advisor. Investors surrender control of their accounts to expert managers, who then have a trustee level of fiduciary duty. Compensation in this model is typically fee-based. In the Advisory Relationship responsibility is shared between the advisor and the investor. Both parties must agree to all trades and there can be a variety of ways the advisor is compensated. The Self-Managed relationship puts primary responsibility on the investor. The provider has no responsibility to know the client’s circumstances or align investment decisions with the client’s risk tolerance. However, the provider must remain truthful and reveal potential biases in the information it provides. It must also make its compensation structure transparent and stand behind the technical reliability of the trading technology and tools it may offer.

Under the Fair Dealing Model, an advisor can only have one type of relationship with a client at one time, but an investor could have different relationships with several different advisors.

The three streams of advice are illustrated, allowing investors to explore onscreen the relationship they would be most comfortable having with their advisor. The site also gives advisors tangible examples of how they could deliver services under the new model. Engaging virtual characters demonstrate how clients in the three streams should be introduced to the firm. The characters also examine compensation schemes and identify rights and responsibilities, among other actions.

“We know of one web site, for a luxury high-performance car, that uses the technology we unleashed to deliver the Fair Dealing web site,” said Julia Dublin, senior legal counsel at the OSC. “However, we are not aware of any other government or agency that has launched a similarly advanced e-government initiative. Flash MX video animation and audio, coupled with Cold Fusion features, deliver a truly interactive site that draws viewers into the material. Add the quirky characters developed for the site and you have a definite first for a securities regulatory body,” concluded Dublin in a press release today.

The Fair Dealing Model requires either the advisor or institution to provide educational opportunities to the investor. “We provide generic online documents that investment firms could easily apply as they deploy Fair Dealing principles throughout their client business,” added Dublin. These include “Inform Your Client” documents about the basics of equities, mutual funds and bonds as well as the fundamentals of investment risk. A sample online of a Fair Dealing Document is also supplied to support the transition to a better understanding between investors and advisors.

“This is win-win: on the one hand, investors can better understand what services they can expect to receive and the fees they can expect to pay. On the other hand, advisors can gain increased clarity in the level of service their clients expect and in the investments they should be making,” concluded Dublin.

Comments on the Fair Dealing Model are requested by December 31.