In CSA Staff Notice 31-342 Guidance for Portfolio Managers Regarding Online Advice, staff of the Canadian Securities Administrators (CSA) reiterated that portfolio managers that operate as online advisors are subject to the same obligations as traditional “bricks and mortar” advisors, including knowyour-client (KYC) and suitability requirements.
The CSA notice indicates that no truly automated “robo-advisors” have been registered in Canada. To date, all online advisors that have been approved, operate under a “hybrid model” where individual advising representatives remain actively involved in, and responsible for, all decisions regarding a client’s portfolio. Typically, an individual advising representative initiates contact with all clients or prospective clients. However, the CSA notice does acknowledge that some advisors operating under the hybrid model will only initiate direct contact with clients if the advising representative has questions or concerns about the information gathered through the online portal. In the latter case, CSA staff may consider imposing terms and conditions to limit the advisor to relatively simple products.
As part of the registration process, CSA staff will review an online advisor’s KYC and suitability processes to ensure that they are designed and conducted in a manner that amounts to a meaningful discussion between the firm and client, notwithstanding the online nature of the interaction. Clients should also have the option to initiate live contact with an advising representative of the firm.
Although the CSA notice focuses on portfolio managers (PMs), it does indicate that the same considerations apply to dealers that operate through online portals.