In a first of its kind, the OSC, IIROC and MFDA recently published the results of a mystery shop of Ontario advisors, including investment dealers, mutual fund dealers, exempt market dealers (EMDs) and PMs, for the purpose of assessing retail investors’ experiences and to evaluate the investment advice process. The report concludes that while most registrants play by the rules, some are still struggling to fulfil basic regulatory obligations.
The review was conducted between July and November 2014, and involved individuals meeting with advisors and purporting to have funds to invest.
- A total of 105 meetings were conducted
- 11 EMD reviews
- 13 PM reviews
- 63% of shops met or exceeded all regulatory expectations and there were no instances of serious misconduct requiring regulatory action
- In almost 80% of the shops, the undercover investors were told about investment products the advisor could sell
- In almost 90% of the cases, the advisors asked about their investment objectives
The news was not all good, however, as unsuitable recommendations were made in 14% of the 24 shops that made specific investment recommendations. A further 21% of shops making recommendations did not collect thorough KYC information and 29% did not discuss fees appropriately. It is important to note that none of the 24 shops that made recommendations were PMs.
As a next step, the regulators plan to focus on the enhancement of advisory practices, setting out clear expectations and using the findings of the mystery shop to inform policy-making. For further details please see OSC Staff Notice 31-715, released on September 17, 2015.