Among securities regulators’ many initiatives is an ongoing discussion of whether to impose a statutory “best interest” duty on financial advisors – the vast majority of whom are registered as salespeople. Investor advocates argue that investors already are under the impression that advisors are held to this standard.

Critics of the regulators’ stance argue that the current suitability standard works well and needn’t change.

My view differs from both.

Although my start in the investment industry was as a salesperson at a mutual fund dealer, I’ve spent the majority of my career licensed as an advising representative or an officer of firms registered as a portfolio manager (PM).

Accordingly, I’ve been held to a fiduciary or best interest standard for most of my career – a position I’ve fully embraced. Although I believe that is the best model for me in my career, I don’t believe that imposing a best interest standard is the best practical solution for the financial services sector overall.

Today, an individual seeking financial and investment advice might pursue one of a handful of paths.

He or she might seek out an individual licensed by an investment dealer (i.e., a “stockbroker”); an “advisor” who sells mutual funds; an insurance-only advisor who sells segregated funds and other products; a fee-for-service financial planner; or a licensed portfolio manager.

As noted, the portfolio manager already is considered a legal fiduciary. So, we have a two-tiered system in which different advisors are held to different standards. And I don’t see that changing.

If securities regulators impose a best interest duty on investment dealers and mutual fund dealers, this move won’t affect the roughly 10,000 insurance-only advisors who sell segregated funds, which look and feel like mutual funds. In other words, we’ll still have a two-tiered system, with advisors held to different standards.

Yet, most advisors look and sound the same to many investors – a point underscored by the Ontario Securities Commission’s 2014 “mystery shopping” exercise. Mystery shoppers encountered a dizzying 48 titles among the 88 advisor meetings studied.

Many wealthy investors already gravitate to PMs (which, as mentioned above, are legal fiduciaries) or other advisors who conduct themselves like fiduciaries. But investors don’t seek out these advisors because of any legal standard. Investors are drawn to PM firms because of their conduct, offerings and fees. Investors with less than $500,000 to invest often end up dealing with one of the other advisor types, including insurance-licensed advisors. Whether this division will change drastically if regulators impose a best-interest standard is not clear.

From an investor-protection perspective, there is a question about whether the investing public will be better protected by raising the standard of care owed to end-clients.

I’d like to think so. But then I recall that investors suffer the most at the hands of what I call “stealth advisors” who often appear no different from licensed advisors, but have no licence at all. Most wrongdoing by licensed advisors results from a breach of the relatively lower suitability standard.

Will imposing a higher standard change the behaviour of ethically challenged advisors? Not likely.

Nonetheless, if regulators are determined to proceed, I would support imposition of a best interest standard if it was a co-ordinated initiative of securities and insurance regulators. That would have the most positive impact on investor protection in Canada.

But that isn’t likely to happen anytime soon.

Dan Hallett, CFA, CFP, is vice president and principal with Oakville, Ont.-based HighView Financial Group, which designs portfolio solutions for affluent families and institutions.

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