OBSI supports the Canadian Securities Administrator proposed rules for financial advisors

TORONTO, Ontario, June 28, 2018 – The Ombudsman for Banking Services and Investments (OBSI) has released its comments regarding the Canadian Securities Administrators (CSA) proposed rules for financial advisors.

OBSI supports the CSA's proposed amendments to National Instrument 31-103 and Companion Policy 31-103CP. We welcome the CSA’s efforts to bring greater clarity, establish one set of rules and to harmonize regulatory requirements across Canadian capital markets. When Canada’s provincial and territorial regulators speak with one voice it helps both investors and advisors to clearly understand their rights and obligations within the client-registrant relationship.

It is particularly important to note that these proposed rules will apply in all jurisdictions and to all registered advisors in Canada, establishing a common set of rules between investors and advisors regardless of self-regulatory organization (SRO) affiliation. This is an important aspect of the initiative because it means that Canadian investors will be able to expect the same principles and fundamental standards of investor protection to apply to any advisor or firm they choose to invest with.

OBSI also supports the proposed changes to the suitability obligation and requirements for registrants to address conflicts of interest in the best interest of the client, including conflicts associated with fees. Based on our experience, suitability and fee disclosure are the highest points of friction between Canadian investors and their advisors. Over the past five years, issues related to suitability and/or suitability of margin or leverage have made up 55 per cent of our investments related case load. We have also seen an increase in fee related complaints which rose from 10 per cent of our investment cases in 2016 to 17 per cent 2017.

The CSA’s efforts to focus on the client’s interests in the investor-registrant relationship have the potential to reduce misunderstandings and disputes between clients and firms. Important changes within the proposed reforms that we see as particularly effective include:

• Additional requirements relating to the KYC process that place greater responsibility on all advisors to properly assess their client’s needs and to clarify for firms and advisors the specific information upon which this analysis must be based. These provisions will provide some certainty to firms and help ensure that investors and advisors are engaging meaningfully in suitability discussions. 
• Clearly prescribing the triggering events that will require a registrant to reassess their client’s KYC information. We have seen many cases where significant suitability problems could have been avoided through more frequent KYC updates and suitability reassessments.
• Integrating a portfolio-level suitability analysis, an approach OBSI has long endorsed. We consider it a best practice for understanding the suitability of securities or strategies.
• The specific recognition of costs as important for suitability analyses. This will provide clarity to both the advisor and the investor and help to ensure that advisors consider the best choices for investors.
• The enhanced disclosures relating to the nature of the firm and its relationships, which can help investors make informed decisions about where they should invest.
• The specific direction that conflicts of interest are to be resolved in favour of the investor. This is a provision that will provide clarity to advisors and align with the existing expectations of investors.

Together, the proposed amendments are an important step towards fostering improved investor-registrant relationships and enhancing public confidence in Canada’s financial services industry. We expect that, if adopted, these proposals will help both advisors and investors to better understand their respective choices and responsibilities, reduce conflicts and result in fewer investor disputes.

Canada’s Ombudsman for Banking Services and Investments (OBSI) is a national, independent and not-for-profit organization that helps resolve and reduce disputes between consumers and financial services firms in both official languages. OBSI is responsive to consumer inquiries, conducts fair and accessible investigations of unresolved disputes, and shares its knowledge and expertise with the stakeholders and the public. If a consumer has a complaint against an OBSI participating bank or investment firm that they are not able to resolve with the bank or firm, OBSI will investigate at no cost to the consumer. Where a complaint has merit, OBSI may recommend compensation up to a maximum of $350,000.

For more information, contact: Mark Wright, Director, Communications and Stakeholder Relations 416-287-2877 ext.2225