Minister Sousa Needs to Legislate a Best Interest Standard to Put Investors Interest First. Now.

PIAC asks, Can We Afford More Naval-Gazing?

Enough is enough.

In 2017, Canadians should be confident the person being paid to provide them financial advice is legally obligated to act in their best interest. It should not matter what their title is or who employs them. Bottom line, if you are legally entitled and being paid to provide financial advice, the client should come first, and that obligation should be backed up by the law.

Guess what? That is not the reality in 2017. In fact, the latest news is that a number of securities regulators in Canada are backing away from discussions to introduce a regulatory best interest standard, expressing strong concerns about the benefits of introducing such a standard.[1]  British Columbia and Québec securities regulators contend introducing a regulatory best interest standard could exacerbate a sense of misplaced trust and overreliance by clients on their registrants.

Yes, heaven forbid any investor trust the person they are paying to ensure a successful financial future for them and their families. If securities regulators were in charge of the roofing industry, I would be investing in bucket makers, because Canadian roofs would have more holes than a cheese grater.

“If securities regulators were in charge of the roofing industry, I would be investing in bucket makers…”

To their credit, Ontario Securities Commission and Financial and Consumer Services Commission in New Brunswick expressed their support for a regulatory best interest standard. However, one can argue this continued commitment is little more than an exercise in navel-gazing. Literally decades have passed since securities regulators began discussing the need for an enhanced best interest standard. Meanwhile, countless Canadians have continued to mistakenly believe their financial advisor is legally compelled to work in their best interest. After a period of time, virtues associated with leadership such as the collection of evidence and consideration of arguments slide into cowardice. Most Canadians would consider a decade long enough to for securities regulators to provide the leadership necessary to improve the regulatory underpinnings of the advisor-investor relationship.

It is time for a more deliberate approach.

Minister Sousa to the Rescue?

On March 31, 2017, the Ontario Minister of Finance, Charles Sousa, presented a speech where he outlined his intention to address a series of challenges facing the financial services industry. The issues the Government of Ontario intends to address include examining the feasibility of a statutory best interest duty in Ontario.

This issue was brought to the Minister’s attention by an Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives, established under his authority in 2015. The Expert Committee, chaired by Malcom Heins, the former CEO of the Law Society of Upper Canada, held consultations in 2015 and 2016. This process resulted in a final report that was tabled with the Minister in November 2016.

PIAC indicated Ontario consumers would benefit from a limitation in the use of titles in the financial services industry as well as an enhanced standard of care. (Photo courtesy of Skitterphoto)

What Did PIAC Have to Say?

PIAC participated in each round of this consultation and participated in multiple public hearings held by the Expert Committee. PIAC’s initial submission stated the following:

“If the Expert Committee could articulate and propose an improved standard of care to better align the expectations of many Ontario consumers with the current “suitability” standard, PIAC feels this would be a positive outcome for consumers.”

This was the polite way of saying, “please fix this misconception.” However, given the continued “ragging of the puck” by provincial securities regulators on this issue, it is now apparent securities regulators need to be scolded and told how to ensure an investment professional is acting in your best interest by provincial legislators. A new source of leadership is needed.

Minister Sousa can, and should, be that initial source. Ontario is home to over 400,000 jobs in the financial services industry. Ontarians should be able to trust their financial advisor with their retirement savings and planning without any misconceptions. In fact, a 2013 survey of over 2,000 Ontario investors found 93 per cent of respondents support the introduction of a best interest duty.[2] If an improved standard of care is instituted in Ontario, other jurisdictions would hard pressed to allow the current “suitability” standard to continue.

PIAC encourages the people of Ontario to contact their M.P.P. to ensure Finance Minister Sousa follows through on needed reform for the financial advice industry. (Photo courtesy of Negative Space)

What Can I Do?

Do you want the person being paid to provide you financial advice to be legally obligated to act in your best interest? Do you want your provincial government to provide the leadership that your securities regulator is failing to deliver on this issue?

If so, contact your local member of your respective provincial Parliament, Legislature or Assembly.

If you are from Ontario, encourage your Member of Provincial Parliament (M.P.P.) to speak up for you and ensure Minister Sousa not only examines the feasibility of a statutory best interest duty, but displays the leadership necessary to propose and implement a best interest duty for the benefit of Ontario investors.

You can find your Ontario M.P.P. at the following link.

 

Jonathan Bishop has been a Research Analyst with the Public Interest Advocacy Centre (PIAC) since 2012. He is the co-author of PIAC’s 2013 study of the financial planning industry entitled, Purse Strings Attached: Towards a Financial Planning Regulatory Framework. He also was an active participant in the consultations of the Ontario Ministry of Finance Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives. PIAC’s September 2015 submission to the Expert Committee can be found here.

[1] Canadian Securities Administrators, CSA Staff Notice 33-319: Status Report on CSA Consultation Paper 33-404 Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients. May 11, 2017. Page 7. Online: http://www.osc.gov.on.ca/documents/en/Securities-Category3/csa_20170511_33-319_proposals-enhance-obligations-advisers.pdf.

[2] Investor Advisory Panel, “Strengthening Investor Protection in Ontario-Speaking with Ontarians,” Ontario Securities Commission, January 2013, page 27. Online: <http://www.osc.gov.on.ca/documents/en/Investors/iap_20130318_strengthening-investor-protection.pdf>.

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