Canada's investing watchdogs wanted an inside look at how financial advisers were dealing with new clients – so they went undercover.

In the summer and fall of 2014, 105 financial advisers across Ontario sat down with new clients who wanted to invest a nest egg of money. What the advisers did not know was that these clients were no ordinary investors and they did not actually have the money.

They were "mystery shoppers" working for a marketing firm hired by three major Canadian regulatory organizations to assess how financial advisers deal with new clients.

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Each was coached on an investment scenario to present in the meeting, allowing regulators to see how different advisers dealt with their circumstances.

For the firms unwittingly tested in the trial, the good news is that the majority did reasonably well.

The three regulators – the Ontario Securities Commission, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada – issued a report on Thursday summarizing the findings, and said no adviser did anything bad enough to warrant regulatory action, and most of the mystery shoppers were satisfied with the meetings. Only 16 per cent reported a negative experience.

But the regulators also concluded many things need to be done better, starting with greater consistency at initial client meetings.

"There's lot of room for improvement," OSC executive director Maureen Jensen said.

Ms. Jensen said one of the most striking findings was the degree of variation in what happened at the meetings, with some investors quickly offered specific choices – in some cases even before the adviser had collected required know-your-client details – while others just had general conversations about goals.

While 56 per cent of the investors were told about fees for products, just 25 per cent were told about how the adviser would be compensated.

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Ms. Jensen said regulators have concluded it is hard for investors to comparison shop for a new financial adviser because they are given such different information from each. And she said the results also raise questions for regulators and senior managers of investment firms about whether advisers need more training on how initial meetings should unfold.

"Every single process was different – they heard different things in every single shop," Ms. Jensen said. "There was no standardized process. And in some cases, we had recommendations made when they still hadn't heard about some basic information they really required."

The three regulators had never before attempted an undercover test, but Ms. Jensen said regulators in the U.K. and Australia have done secret shopper trials.

"We thought it was a pretty interesting idea and thought we would try it here," she said.

Shoppers were sent into a variety of financial firms, including traditional brokerages, mutual fund dealers, portfolio managers and exempt market dealers.

Out of 88 meetings where the shoppers collected enough data to complete a questionnaire afterward, investors reported they received recommendations to buy a specific product in 27 per cent of cases, and received general advice in 36 per cent. In the rest, no advice or recommendations were offered at the first meeting.

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Leslie Byberg, the OSC's director of strategy research and planning, said even though 88 per cent of clients were happy with the recommendations they received, regulators concluded one-third of the cases did not meet compliance expectations, including 29 per cent that did not comply with know-your-client or suitability requirements. She said it demonstrates that clients cannot always tell if they have received good advice.

"It's really quite stark that in 37 per cent of the cases, the adviser didn't follow the process, but the client thought it was great," she said.

But Ian Russell, who heads the industry association for Canada's brokerage firms, said on Thursday it is hard to draw conclusions from the results because only six advisers in the brokerage industry sector provided specific recommendations in the initial meeting.

He said there were no cases of serious misconduct, but his association wants to work closely with regulators "to develop targeted solutions and guidance" to improve best practices.