On both sides of the Canada/U.S. border there’s a debate about increasing the standard of care that financial advisors owe to their clients, from suitability to a fiduciary standard. The persistence of financial services sector scandals should help policy-makers, and advisors, see the need for action.
In general, investor advocates are in favour of clients receiving advice that is guided only by the best interests of the clients, not distorted by compensation grids or more subtle pressures on advisors to favour one product over another.
On the other hand, the sector typically opposes the idea of regulators imposing a fiduciary duty on advisors. The argument is that this would increase the cost of advice and lead to a reduction in the availability of advice to clients with fewer investible assets.
These basic positions were staked out when the Canadian Securities Administrators launched the debate here in Canada in late 2012; now, the issue is being discussed in the U.S.
The easy path for Canadian regulators is to do nothing. Enhancing investor protection requires action; and, for that to happen, policy-makers must overcome their natural inertia. Yet, they should have ample evidence of the need for change. The disciplinary decisions of regulators in recent years, for example, provide plenty of evidence that advisors at mainstream financial services firms are going astray. Retail investors are the most vulnerable participants in this game, given their relative lack of knowledge and the imbalance in market power.
Raising the standards of care won’t necessarily solve all these problems. True scoundrels can violate fiduciary standards just as easily as they do suitability standards.
Yet, a higher standard of care would help to guide many well- meaning advisors to provide more honest, less conflicted advice by empowering them to resist pressure from their firms in favour of their clients. And, if nothing else, higher standards should make pursuing redress easier for wronged clients.
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