Best Interest Standard Warrants More Study - IFIC
February 22, 2013
Toronto, Ontario - February 22, 2013 - In a submission (https://www.ific.ca/Content/Document.aspx?id=7541&LangType=1033) filed today with the Canadian Securities Authorities (CSA), The Investment Funds Institute of Canada (IFIC) calls for additional research on several key elements contained in the CSA Consultation Paper 33-403: The Standard of Conduct for Advisers and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice is Provided to Retail Clients.
"The investment funds industry commends the CSA for exploring the appropriateness of a best interest duty by first consulting with a broad range of stakeholders," said IFIC president and CEO Joanne De Laurentiis. "Canadian investors already enjoy one of the most effective regulatory regimes in the world and the industry welcomes any opportunity to discuss how we can continue to serve investor interests. As some jurisdictions start to introduce versions of a best interest standard, it?s appropriate for Canada's regulators and the industry to examine the conditions that prompted these initiatives; whether similar conditions exist for Canadian investors; and whether similar interventions would be in the Canadian investor's interest."
The submission notes that the consultation paper does not offer a precise definition of 'best interest', making it difficult to provide a fulsome response to many of the questions raised. It examines how interpretations of 'best' have been approached in other contexts, and recommends, as an important next step, a more thorough analysis of existing case law around fiduciary duty and the extensive framework of rules that currently apply to the dealer and advisor businesses.
The discussion paper identifies five areas of investor concern and explores potential options for remediation. In its submission, IFIC recommends further research to understand whether the potential concerns, as identified, are already being addressed through the robust regulatory structure in place in Canada today. "The potential long-term impacts of a legislated best interest standard on both investors and the financial services sector are significant," said Joanne De Laurentiis. Citing the demonstrated benefits of advice, De Laurentiis cautioned that "Any initiative with the potential to disrupt the relationships between investors and their advisors needs to be weighed carefully. Given what we know about the role advisors play in creating good savings habits, it's particularly important to protect access to advice for first-time investors as a regulatory policy objective."
In its submission, IFIC expresses the industry's view that several of the investor issues raised in the consultation paper require expert research and analysis. For example, the consultation paper identifies asymmetry as a concern, but does not amply demonstrate that the current rules governing disclosure, suitability, reporting, know your client and know your product rules fail to protect investors adequately. Similarly, the paper alleges an expectation gap with respect to investors' understanding of the duty of their advisors; however, the suggestion that this constitutes a problem in need of resolution is drawn from opinion surveys. Thorough analysis is required to determine whether the expectation gap constitutes a real problem affecting outcomes, or whether investors' expectations are, in fact, being met through our current legal framework.
In addition, the IFIC submission identifies a number of key areas in need of further analysis and research:
* Expert analysis of whether conditions exist in Canada with the potential to lead to market failure;
* Thorough understanding of the conditions and comparative regulatory environments that prompted foreign regulators to implement versions of a best interest standard ? and exactly how these standards are being defined and implemented;
* Monitoring outcomes in foreign jurisdictions for unintended negative consequences, e.g., limiting access to advice, or increased costs to low wealth investors;
* Collaboration with Canada?s self-regulatory organizations to assess the effectiveness of current and incoming rules as alternatives to a statutory best interest standard;
* Comparative analysis of the standard of care currently in place across all financial services and products; and
* A thorough, analytically valid cost-benefit assessment of the impact of all changes that are contemplated.
In addition to responding to the 52 questions posed by the consultation paper, the IFIC submission appends a detailed review of existing securities legislation in Canada, and additional insights into the status of 'best interest standards' in Australia, the United Kingdom, and the United States.
IFIC's submission is available at www.ific.ca under Policy News.
The Investment Funds Institute of Canada is the voice of Canada's investment funds industry. IFIC brings together 150 organizations, including fund managers and distributors and industry service organizations, to foster a strong, stable investment sector where investors can realize their financial goals. By connecting Canada's savers to Canada's economy, our industry contributes significantly to Canadian economic growth and job creation. The organization is proud to have served Canadian financial consumers for more than 50 years.
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Senior Manager, Public Affairs
The Investment Funds Institute of Canada (IFIC)
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