Many of the compliance officers (COs) and company executives surveyed for this year’s Regulators’ Report Card believe they and their firms are left out of the decision- making processes at the investment industry’s two self-regulatory organizations (SROs).

Specifically, survey participants whose firms are members of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) gave both SROs lower year-over-year ratings of 6.4 and 5.2, respectively, when asked to rate “the effectiveness of the dealer community’s representation on the regulator’s board of directors and/or special committees.” Those ratings are significantly lower than 2017’s ratings of 7.0 for IIROC and 6.4 for the MFDA.

Chief among the concerns is that the composition of both SROs’ boards doesn’t reflect the diversity in size of member firms. Many survey participants complained that IIROC’s and the MFDA’s boards contain an outsized proportion of banks and larger firms, or those firms have a greater voice on the boards than smaller firms do.

This board composition was of particular concern to many survey participants at small mutual fund dealers. The feedback from this group was that larger firms drive the decision-making process at the MFDA at the expense of smaller firms.

“Who’s sitting on the board? It’s all [representatives from] the bigger dealers,” says a CO with a mutual fund dealer in Ontario. “No one from a small dealer is on the board, and I don’t think that that’s a coincidence. [Or is the fact] that the small dealers are resigning [their membership] every year.”

“[The representation on the board is] terrible,” adds a company executive with a small full-service dealer in Ontario. “You get a couple of representatives from each of the big banks or insurance companies, and then you have Sonny Goldstein. I don’t think this is necessarily representative.” (Goldstein is president of Toronto-based Goldstein Financial Investments Inc.)

Some survey participants at smaller dealers understand why the larger firms play a significant role at the SRO, but nonetheless want the MFDA’s board to have greater representation from dealers of their size.

“Per capita, having big dealer representation at the board level [of the MFDA] makes sense,” says an executive with a mutual fund dealer in Ontario, “but I don’t see smaller firms being represented.”

“With the continuing evolution and growth of the bank-side dealers, there’s less and less of a voice in there for smaller independents,” says a chief CO (CCO) with a mutual fund dealer in Alberta.

An email from the MFDA to Investment Executive (IE) stated that there’s nothing stopping small member firms from getting involved in the decision-making process at the SRO: “The MFDA has an open call for nominations and a member ballot process.” The statement also outlines programs that the SRO has to solicit feedback from firms. These programs include a policy advisory committee and consultation groups that are open to all members.

Although IIROC’s rating in this category did not decline to the same degree as the MFDA’s over the past year, survey participants at investment dealers expressed some of the same concerns as their mutual fund dealer counterparts regarding the presence of larger dealers on that SRO’s board of directors.

Fifteen directors comprise IIROC’s board, with five of the seven industry positions dedicated to member dealers. Two of these five directors are from banks; one is from a large, national independent; and two are from smaller dealers. Still, many survey participants believe the bigger firms, especially the banks, have an oversized influence.

“The only thing that matters to the board is the big banks,” says a CCO with a securities dealer in Ontario.

“The whole thing is run by the banks,” adds a company executive and CCO with an investment dealer in the same province. “I guess they are the industry now.”

However, some survey participants were sympathetic to IIROC, noting that getting the right balance of representation is difficult, given the diversity in size among the SRO’s member dealers.

“IIROC has a large cross-section of members,” says an executive with a large, full- service dealer on the Prairies. “So, getting everybody involved is [difficult for IIROC].”

In addition, some COs and company executives pointed out the effectiveness of IIROC’s district councils and subcommittees in providing avenues for feedback for dealers of all sizes.

“There are a lot of subcommittee panels that many colleagues and former colleagues are on, and they’re [effective],” says a CCO with a large, national investment dealer in Ontario.

IIROC’s board reviewed the structure of its advisory committees last year, with the intent to foster greater member involvement, according to a statement the SRO emailed to IE. In addition to 10 district councils and a national advisory committee, IIROC now has four principal advisory committees dedicated to issues such as market rules, conduct and compliance, proficiency, and financial and operations advice.