The Investment Dealers Association has approved a series of amendments to its Minimum Standards for Retail Account Supervision. The amendments are effective immediately.

The IDA says that the most significant change is the inclusion of a mechanism for allowing a firm to apply for SRO approval for another form of account supervision.

It notes that commission levels alone are a poor basis for determining whether an account requires review. Their sole advantage is that they are readily available as a basis for selecting accounts and relate to the level of activity in an account. “However, other calculations or methods, may be more appropriate by focussing supervisory attention on a small number of high-risk accounts. For example, use of a commission to equity ratio would eliminate high value accounts for which the current commission level represents a miniscule consideration. Some firms are also developing methods of classifying securities so as to enable them to compare automatically clients’ holdings against their recorded investment objectives.”

The proposed changes also clarify that the review is intended to be a preliminary screening to identify situations that require further investigation. It is not intended that the trading in every account meeting the review criteria be thoroughly analyzed, because in many cases it is immediately apparent that there is no basis for concern about the trading activity.

The changes come out of a Joint Industry Compliance Group Sub-Committee, which was formed in 1997 to revise and update the policy on retail account supervision. The Sub-Committee concluded that there was a lack of clarity and a common understanding of the purpose and extent of a daily or monthly account review. It also found that in many cases the current standards resulted in large numbers of accounts requiring review, such that supervisory resources were strained and the thoroughness of reviews was questionable.

The minimum commission amount for branch office monthly reviews has been increased from $1,000 to $1,500 and the head office reviews from $2,500 to $3,000. Another amendment also addresses accounts which pay set fees rather than commissions. Members offering these accounts are required to develop a procedure to determine which of these accounts require monthly review.