In April 2016, the Canadian Securities Administrators (CSA) launched a particularly odd consultation. The regulator published a paper proposing a series of reforms, including a possible “best interest” standard (BIS). In that paper, the various members of the CSA staked out different positions on the BIS, ranging from the strong support of Ontario and New Brunswick to the entrenched opposition of British Columbia.
More than a year later, the CSA announced that three more provinces (Alberta, Manitoba, and Quebec) are joining B.C. in ruling out the adoption of a BIS. Unfortunately, their reasoning is baffling.
The regulators that have officially written off the idea of adopting a BIS claim that they expect financial advisors to act in the best interests of their clients, but are unwilling to require it in practice. Instead, these regulators insist that tweaking some of the existing rules will be enough. Many in the investment industry wholeheartedly agree with them on this, but this position defies common sense – you can’t claim to expect best interest behaviour while simultaneously refusing to demand it. Regulatory regimes that ignore accountability also lack credibility.
The other justification for rejecting a BIS is even more implausible. Its opponents claim that obliging advisors to prioritize clients’ interests would inspire too much trust in the industry. This also flies in the face of common sense.
Most investors already believe that advisors are obliged to act in their clients’ best interests, so actually requiring that seems unlikely to inflate client trust unduly. If all investors had the financial savvy to meaningfully second-guess their advisors, that would be wonderful – but that’s not realistic. And that’s not why people pay for advice.
Somehow this opt-in only BIS requirement is the best that the CSA could come up with after a prolonged consultation period. So, Ontario and New Brunswick are left to go it alone. Hopefully, they will follow through and craft an effective standard that will enhance investor protection and advance industry professionalism – and, hopefully, prodding the rest of the CSA to follow suit, eventually.
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