Encouraging the adoption of a best interest standard for investment advisors continues to be a key goal of the Investor Advisory Panel (IAP) of the Ontario Securities Commission, according to the IAP’s newly released 2016 Annual Report. Other top priorities of the seven-member panel include:
- Conflicts of interest and conflicted compensation;
- Accuracy in risk profiling;
- Strengthening the Ombudsman for Banking Services and Investments; and
- The future of the IAP within the new Capital Markets Regulatory Authority.
The Report underscores the IAP’s view that conflicts of interest and conflicted compensation are unacceptable and that proposals in CSA Consultation Paper 33-404 requiring merely that such conflicts be disclosed are insufficient from a retail investor perspective. In 2017, the IAP intends to prepare a response to the CSA paper arguing that embedded commissions and conflicted compensation must be banned outright.
Adopting a Best Interest Standard
Adoption of a best interest standard would be one key step toward the elimination of conflicts. Among other things, this would involve the industry-wide implementation of remuneration structures that aligned advisor and investor interests. In 2016, the IAP urged both IIROC and the MFDA to support a best interest standard and in 2017 it intends to support ongoing OSC efforts in this area (see the OSC’s 2017-18 Statement of Priorities).
Improving Risk Profiling
The IAP has continued to express concern about the shortcomings of current know-your-client risk profiling. A study conducted on the IAP’s behalf in 2015 concluded that 83% of examined risk profile questionnaires were unfit for the purpose. In 2016, the IAP followed up on these findings with a Risk Profiling Roundtable involving investors, industry and regulators.
Strengthening the Ombudsman’s Office
Another concern of the IAP is what it describes as “industry’s refusal to accept” findings and recommendations of the Ombudsman for Banking Services and Investments (OBSI). The IAP argues that OBSI should work on an arbitration model rather than a mediation model, with the ability to make binding decisions. Pursing this goal is a top IAP priority for 2017.
Adapting to the Common Regulator
The IAP is concerned that those developing the new multi-jurisdictional Capital Markets Regulatory Authority (CMRA) have not paid enough attention to the need to incorporate mechanisms for the airing of investor concerns within the new regulatory framework. The IAP intends to continue to advocate for the inclusion in the CMRA of an Investor Office or a panel similar to the IAP itself.
Other issues referred to in the Annual Report include proficiency reform and title reform (the latter being aimed at what the IAP sees as designations that mislead investors with respect to advisor qualifications).
For further information, please see 2016 Annual Report of the Ontario Securities Commission’s Investor Advisory Panel (April 2017).