Those who access order execution only (OEO) services from a discount broker take note as IIROC’s recently released proposed guidance will be of interest! The proposed guidance is intended to update outdated IIROC rules given the evolution of the type of products, tools and account types now offered by OEO dealers. To set the stage, the current rules generally provide that if an IIROC dealer accepts a client order where no recommendation is provided, certain suitability obligations do not apply for that order. The crux of the matter, of course, is whether or not a “recommendation” has been provided, given there is currently no clear definition of a “recommendation”. The proposed definition of a recommendation would be one which is reasonably expected to influence a person’s investment decision regarding securities.
The proposed guidance sets out a number of tools that are currently in use by discount brokers, and IIROC staff set out which of those tools they consider to be a means of providing implicit recommendations to clients, and thus should not be offered by discount brokers. Some of the tools reviewed which may amount to a “recommendation” include certain pricing recommendations, hyperlinks to third party websites and trading tools. Of interest to registered portfolio managers is the specific mention of model portfolios which are intended as a guide to the investor to help build their own portfolio, which IIROC generally considers to be a prohibited recommendation and thus should not be offered by OEO dealers.
There is a suggestion that IIROC might grant exemptive relief to allow OEO firms to make limited model portfolios available to their clients based solely on the criteria set out in the guidance.
Comments are open on the proposal until December 19, 2016.