The challenge of understanding the unique perspectives of consumer level investors led the Ontario Securities Commission (OSC) to establish the Investor Advisory Panel (IAP) in 2010. Its mandate includes:
- Advising and commenting in writing on proposed rules, policies, concept papers and discussion drafts, including the Commission’s annual Statement of Priorities;
- Considering views representative of a broad range of investors through consultation with and input from investors and organizations representing investors in formulating its advice and written submissions to the Commission;
- Bringing forward for the Commission’s consideration policy issues that may emerge as a result of the Panel’s investor consultation activities and comment on the potential implications for investors posed by those issues;
- Advising and commenting in writing on the effectiveness of the investor protection initiatives implemented by the Commission.
Functioning independently of the OSC, it is meant to provide a platform for investor perspectives.
The IAP recently published their 2018 Annual Report. As an independent advisory panel to the OSC, the IAP is tasked with representing the views of investors and ensuring that those views are considered in all OSC activities.
The Report outlines its work across several themes, including:
“Best Interest Standard”: the IAP focused a significant amount of its attention on the development and promotion of a “Best Interest Standard”—which aims to eliminate conflicts of interest across every area of advice giving. We have previously commented on the division among Canadian regulators when it comes to the “Best Interest Standard” and the Canadian Securities Administrator’s (CSA) efforts to achieve a harmonized standard.
The IAP seeks an overarching Best Interest Standard and on that objective it fell short, as its report notes, the CSA proposals did not adopt such a concept, but rather “infused best interest principles into key areas of the advisor-client relationship, including know-your-client, know-your-product, suitability and conflict of interest mitigation.”
Discontinuing Embedded Commissions: the IAP continued its efforts to urge regulators to eliminate embedded commissions. The report notes that the IAP has “expressed [its] impatience with what [it] perceived as the slow pace on the part of regulators in moving forward to ban imbedded commissions…”
The IAP supports a recent proposal from the CSA, Proposed Amendments to National Instrument 81-105 Mutual Fund Sales Practices and Related Consequential Amendments, which prohibits embedded commissions in the forms of trailing commissions to order-execution-only dealers and mutual fund deferred sales charges.
We have previously commented on the CSA’s proposals with respect to embedded commissions.
- Misleading Titles: the IAP continued to monitor the industry’s response to the proliferation of misleading and empty titles, such as “seniors specialist” or “wealth manager”. These titles make it more difficult for consumers to access truly qualified advice. It commends certain efforts on this front, such as the OSC’s Seniors Strategy, but notes that title reform must be expedited.
- Proficiency: the IAP continued to draw attention to the “uneven approach to proficiency that exists in different segments of the investment industry.” The report notes that proficiency is central to professionalism, which in turn is the key to protecting investors. To that end, the IAP welcomed the steps taken by the Mutual Fund Dealers Association (MFDA) to establish a continuing education requirement as well as minimum standards for MFDA members.
- Cooperative Capital Markets Regulator: in step with the OSC’s moves support transition to the Capital Markets Regulatory Authority (CMRA), the IAP has asserted the need for adoption of more robust investor protection and investor-focused governance features in the design of the CMRA prior to its launch. It recommends that CMRA have its own IAP-type investor advisory body.
In 2019, the IAP has advised that it will focus on three key initiatives:
- to ensure that investor advocacy is heard and accounted for by the new CCRM and other regulators, in the development of future regulatory policy;
- to conduct a mass market survey to assess the advice being provided to mass market investors; and
- to assess the regulatory gaps that have emerged/may emerge in light of new “disruptive technologies”.
In light of the OSC’s stated objective of reducing the regulatory burden, the IAP will no doubt play a key role in supporting an appropriate balance between the need to remove over-regulation that encumbers growth and innovation, on one hand, and robust investor protection, on the other.
We will continue to monitor developments in this area.