Providing advice through an online portal is a developing area of the Canadian financial industry. The ability for Canadian clients to input their know-your-client (KYC) information into a website, and for that website to return customized financial advice or allow the client to invest in a specific fund (typically an ETF), seems like a great e-commerce solution for registrants. However, firms should be cognizant that adding this online portal service offering represents a significant change in your business model that requires notice to the regulators in advance of implementation.
Regulators have released guidance on this topic in the form of CSA Staff Notice 31-342 Guidance for Portfolio Managers Regarding Online Advice (the Guidance). In the Guidance, regulators set out that registrant obligations are intended to be “technology neutral”, in that the rules should be the same for registrable activities being conducted in person or online. However, firms that are considering adding an online portal should be aware of the following:
- In Canada, there is no such thing as a pure online advisory or dealer model. Canadian regulators have adopted a “hybrid model” when it comes to online portals and KYC/suitability obligations. This means that regulators will allow firms to collect KYC information through a website or portal, but an appropriately registered individual must (still) be responsible for determining suitability after reviewing the collected information. The suitability determination will often require that the registered individual directly communicate with the client after the information collection stage, to review the provided KYC information together.
- In advance of CSA staff approving an online portal, they will often require a detailed explanation of the proposed online model, including website mockups and proposed KYC/suitability forms. Firms should be prepared for a potentially lengthy review.