By James Langton

(March 23 – 12:20 ET) – Principal-agent relationships between firms and their reps won’t be permitted by the Investment Dealers Association, the IDA announced today. The decision comes despite a recommendation from the Canadian Securities Administrators’ Distribution Structures Committee to allow such arrangements.

A regulatory bulletin from the IDA says its Retail Sales Committee, the IDA Executive Committee and the IDA Board have all considered this issue, but decided to maintain the status quo for IDA firms.

Under IDA rules only employer-employee relationships are permitted. It has traditionally interpreted securities laws as only allowing these sorts of arrangements, but some provincial securities commissions have approved the principal-agent system among mutual fund dealers and non-IDA securities dealers.

“The main reasons for maintaining the current regime are: It is more difficult to manage a sales force of agents as opposed to employees. The primary reason for principal-agent relationships is favorable tax treatment. Many believe that the changes proposed by the CSA will exclude existing agents from their currently favorable tax treatment,” says the IDA.

Although the IDA won’t permit its members to use this sort of structure, it will accept membership applications from firms that are arranged this way, with the understanding that they must transform the firm into a traditional IDA structure within a year. Firms approved under this plan would also not be allowed to add more agents during their transition.