The investment industry should brace itself for more upheaval, as the case for further regulatory reform is building steam.
The new year is shaping up to be an uncomfortable one for some players in the retail investment business, with the full effects of the second phase of the client relationship model (CRM2) reforms finally kicking in. Clients will begin to discover just what they are paying to invest and will get a better idea of the returns they are generating, thanks to the new CRM2-mandated annual cost and performance reports that will begin to be delivered in early 2017. In some cases, the results may not be pretty.
At the same time, the Canadian Securities Administrators (CSA) will be contemplating a ban on embedded fee structures along with its ongoing deliberations over a new regulatory “best interest” standard and a series of other reforms targeting client/financial advisor relationships. These issues have been percolating for several years now, and the evidence in favour of further fundamental regulatory action continues to mount.
For one, there are the ongoing regulatory settlements being struck between the Ontario Securities Commission (OSC) and several large bank-owned firms that reveal the industry has overcharged many investors for years. The issues may be coming to light only now, thanks to a combination of the firms’ preparations for CRM2 and the availability of no- contest settlements with the OSC.
At the same time, the recently released reviews of industry compensation structures by the CSA, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada also highlight the fact that certain prevailing industry practices probably are harming clients. Some firms appear to be pushing their representatives to sell in-house products. As well, certain pay practices in the exempt market may be reminiscent of the Wild West days of the mutual fund industry.
Believing that the CSA will be able to turn away from the evidence and maintain the status quo is difficult. As a result, some industry players are coming around to the idea that embracing fundamental reforms is better than fighting them.
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