The Canadian Securities Administrators today published a consultation paper that considers the desirability and feasibility of imposing a statutory fiduciary duty on advisers and dealers to act in the best interests of clients.

A proposed duty, or "best interests" standard, would be intended to address the CSA's five primary investor protection concerns related to the conduct of advisers and dealers, namely that (i) there may be an inadequate principled foundation for the standard of conduct owed to clients; (ii) the current standard of conduct may not fully account for the difference in information and financial literacy between retail clients and advisers/dealers; (iii) there is an expectation gap between investors and advisers/dealers as investors incorrectly assume that advisers and dealers must always provide advice in the client's best interest; (iv) while advisers and dealers must recommend suitable investments, the investments need not necessarily be in the client's best interest; and (v) the application in practice of current conflicts of interest rules may be less effective than intended. According to the CSA, acting in the client’s best interests means the dealer or adviser must ensure that client interests are paramount, services are performed reasonably prudently and clients are provided with full disclosure and not exploited.

In considering adoption of a statutory fiduciary duty, the CSA cited international developments toward enacting similar standards. Our own Ed Waitzer considered such international developments in a post published last year. For consultation purposes, the CSA provided the following potential articulation of a best interest standard:

Every adviser and dealer (and each of their representatives) that provides advice to a retail client with respect to investing in, buying or selling securities or derivatives shall, when providing such advice,

  1. act in the best interests of the retail client, and  
  2. exercise the degree of care, diligence and skill that a reasonably prudent person or company would exercise in the circumstances

The CSA also stated that while other articulations may exist in certain jurisdictions, the CSA is specifically exploring the harmonization of the appropriate standard across the country. The consultation paper, which asks a number of specific questions regarding the potential standard, its application and its potential impact, is open for an extended 120-day comment period. Comments are thus being accepted until February 22, 2013. For more information, see CSA Consultation Paper 33-403.