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Financial advisers could face uncertain future under planned OSC rules, industry warns

Ontario Securities Commission offices in Toronto.

Fred Lum/The Globe and Mail

An Ontario Securities Commission proposal to require financial advisers to act in the best interests of their clients could push investment firms away from offering traditional investment-advisory services if the new standard is too difficult to implement, industry officials warn.

Peter Moulson, head of wealth management compliance at Canadian Imperial Bank of Commerce, told an OSC roundtable event in Toronto it is unclear how financial firms would be expected to apply a more stringent regulatory standard in practical terms, and said it could even jeopardize the existence of the traditional advice model in which financial advisers work largely on commission and receive fees from companies whose financial products they sell.

Mr. Moulson said big financial firms could end up narrowing their business lines to provide just discount brokerage operations that simply fill orders without providing advice, as well as full-service advice for which clients pay a flat fee. Those are the safest ways to ensure no possible conflicts of interest arise in how advisers are paid, he said.

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"That would be the only practical way to address the uncertainties around operating in a best-interests world when we have advisers being paid based on commission, to mitigate the risks sufficiently," he said.

The Ontario Securities Commission has published a proposed new rule that would require financial advisers to make recommendations that are in the "best interests" of their clients, which is a higher standard than the current model in which advisers must make "suitable" investments.

Suitable investments encompass a broader range of options – including investments that pay high fees for the adviser and are more costly for the investor – as long as they are not unsuitable.

OSC chair Maureen Jensen told the roundtable that most people mistakenly believe their financial advisers are required to act in their best interests, and do not realize conflicts of interest exist in how their advisers are paid. While many advisers already try to operate in their clients' best interests, Ms. Jensen said, many others do not.

"We know the current models are not serving investors in the way they deserve," she said. "We feel this is unacceptable."

But Ian Russell, chief executive officer of the Investment Industry Association of Canada, a trade association for companies in the wealth-management sector, said the OSC's proposal leaves too much uncertainty because it has no explanation about how firms would be expected to operate to ensure they would not be accused of failing to act in clients' best interests.

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Mr. Russell said the industry wants to raise professional standards, but firms need more clarity to understand what is expected to ensure their advice would not be subject to legal challenges.

Randy Cass, founder of Nest Wealth Asset Management Inc., who is a supporter of the OSC's plan, said it is a mistake for financial firms to insist regulators "parse out the exact meaning" of the proposed reforms, arguing it will "haunt" the financial sector if it does not champion the new model.

Former financial services executive Lawrence Haber, who worked at National Bank Financial and DundeeWealth Inc., said the investment industry has been changing over the past 20 years and conflicts of interest that used to be minor are now prevalent.

He said the old business model, in which stock brokers were more clearly understood to be transactional salesmen, has given way to a more "holistic" approach, with advisers offering much more guidance about how to invest and plan for retirement.

The financial industry "is at a fork in the road," he said, and has to clarify the responsibilities that come with being trusted advisers, or else lower the public's expectations so they understand more clearly that their advisers are salespeople.

"I think the reality is this genie is out of the bottle," he said. "I think going backward would be the wrong way to go."

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About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More


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