Last October, the Canadian Securities Administrators released a consultation paper with potentially serious implications to our community. The paper, “The Standard of Conduct for Advisers and Dealers,” is almost 40 pages long.

The concern

This weighty tome reviews the state of the Canadian marketplace and contrasts it to recent changes undertaken in the U.S., U.K., Australia and the EU as a pretext for justifying changes that are looking to make in Canada. CSA identifies five major concerns:

  1. There may be an inadequate principled foundation of the standard of conduct owed to Canadians.
  2. That standard of conduct may not fully account for information and financial literacy asymmetry between advisors and dealers and their retail clients.
  3. There is an expectation gap because investors incorrectly assume their advisor must always give advice in their best interests.
  4. Advisors recommend suitable investments but not necessarily in the client’s best interests.
  5. Application of the current conflicts of interest rule might be less effective than intended.

Translation: There is no blanket regulation imposing a fiduciary responsibility on advisors. Essentially, the advisor community is missing a legally mandated financial version of the Hippocratic oath.

Read: Prepare to be squeezed

Do no harm…

Should there be one? In my belief, absolutely. There is a large degree of informational asymmetry between clients and advisors, and clients do believe advisors are mandated to act in their best interests.

Given their role as paid advisors to clients, there should be a mandated fiduciary responsibility imposed on our community.

Read: No fiduciary standard needed in Canada


In the financial advisory industry, just like any other, there are people who are good at their jobs, people who are misguided, people who are bad at their jobs, and people who are outright crooks. Advisors are human. So the impact of what CSA is proposing will be different, depending on which category an advisor falls into.

Read: Defining fiduciary duty

Conflicts of interest

Many advisors work hard to eliminate even perceived conflicts of interest, while others have been known to auction off a client’s business to whichever supplier offers the best sports tickets or other perks.

When I overhear advisors talking about these practices I think, “If only your client could hear you now.”

Read: Fiduciary versus suitability standard

The reality is a mandated ban or disclosure of situations that would create a conflict of interest would not hurt anyone acting in the best interests of the client.

But there are many advisors who will lose clients (or at least their perks) if they fail to adapt.

Compensation reform

This is surely the touchiest of subjects. CSA’s paper makes direct reference to two possible changes to compensation: better disclosure, and potential outright banning of some sales commissions.

Read: IIROC wants advisors to justify comp

Let’s face it: this needs to happen. My mechanic doesn’t start working on my car until he gives me a quote breaking down parts and labour costs. And if I don’t like it, I can shop around. Don’t clients have the same right? And yet non-disclosure is rampant in our industry. A few examples:

●      Insurance: How many clients are told that the total comp paid to the advisor and MGA equals, or exceeds, the first-year premium?

●      Mutual Funds: How many clients know what they’re actually paying in MERs? And worse, how many have been told what the advisor is paid in DSC commission?

●      Brokerage: New-issues compensation, embedded undisclosed markups on bonds, and the need to hit monthly targets create an incentive to sell at any cost.

●      Bank Branch Advisors: They claim they’re on salary. But if their bonuses are linked to asset gathering, isn’t that a commission?

If you’re not making those kinds of disclosures, what’s stopping you? Most likely it’s linked to an underlying fear of a client questioning your intentions and, in turn, potentially losing that compensation. But that’s the definition of a conflict of interest.

Read: Professionalization of the investment advisor role

The ugly truth

For some advisors, reform will have little to no impact on their businesses. For others, the picture is far less pretty: better disclosure, compensation reform and the elimination of conflicts of interest – along with a mandated fiduciary responsibility – is what’s needed in the Canadian marketplace.

This may lead many advisors, who are unable to overhaul their practices, to exit the industry. But if people are going to turn to us for expertise, we have a duty to act in their best interests.

At its core the key value proposition for every advisor is to make things better for their clients. It’s long past time to create a structure within this industry designed to enable that goal.

What do you think? Email us or comment below.

Justin August is a pseudonym for a Vancouver-based financial advisor.

Originally published on
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This consultation paper and the one one MF fees raise good points. But they offer no realistic solutions other than to punish advisors both good and bad.I for one feel caught in the middle between draconian overegulation and unrealistic client expectations which will be further exacerbated if there is not an unbiased input from all parties involved. I do not believe clients are illerate or ignorant as both consultation papers make them out to be.

Saturday, Jan 12, 2013 at 5:23 pm Reply


An amazing, well thought out and accurate response from Mr. St.Arnault. All advisors would be well served to review it with thoughtful consideration. Thank you for the time and effort it must have taken to present your counter argument, kudos.

Shane O’Bryan
Financial Advisor

Friday, Jan 11, 2013 at 12:22 pm Reply


I have been watching these articles come since the CSA paper came out and I have finally had enough and feel compelled now to comment in regards to these continuos one sided responses that seem to imply that the only way Canadian investors will be treated fairly when buying professionally managed investment funds (mutual funds) is if they pay a fee based on their assets or a hourly based fee charged directly to the clients.

This infuriates me to no end as to why should one compensation method be legislated as the only way client’s can compensate their advisors and then advisors can choose to charge their clients for their services!

Since when do we not live in a free country and since when should consumers not be allowed to choose the method that they feel is best for them and their advisor relationship?

Virtually every advisor in Canada built their books of business on the backs of mutual fund companies when they started to pay the DSC commissions in the 80’s and many investors & clients experienced significant wealth creation due to investing in these various funds over that time.

It is important to remember that all levels of compensation are disclosed to the investor in prospectuses and now new fund fact sheets specific to the applicable fund purchased, as well as all MER’s and compensation (including service fees) paid on each load model to the advisor and the dealer.

I totally disagree the embedded MER’s are confusing and don’t disclose to investor’s the cost of purchasing a various mutual fund through their advisor, in fact I believe that the majority of advisors in Canada clearly explain that the cost of their annual performance is a MER charged by the fund company (and disclose as per the prospectus and fund fact sheet that we receive a service fee or trailer fee & or DSC or LSC if applicable) to their clients. It is a very clear way for investors to understand if the fund makes 10% and the MER is 2.3% you as the investor will receive the net return of 7.7%. Also, it is completely accurate disclosure that all of the performance figures reported by the fund companies is net of the MER’s, so it is very clear and transparent the returns for a various fund when comparing to other funds in the same peer group.

The solution to compensation is simple, IFIC & IIROC should design similar to a LTA (IFIC) form a specific compensation disclosure form and it should be required to be completed at the outset of the client relationship and just as a KYC form is required to be updated on a regular basis, the disclosure should be updated at the same time as the KYC form. You could infact make the compensation disclosure part of the NCAF and the KYC updates and in this manner the advisor community would be disclosing to clients their compensation model agreed to by the client and ongoing disclosure would be made to the investors ensuring continuous communication and education with the investor.

Let me be clear, we have a large practice and we are in the process of moving a majority of our clients to the F class model, and we are charging our client’s directly authorized by them in writing as we feel this model is a strong model for our clients going forward, but we are not able to do it with very small clients as these clients need to be able to choose a model to compensate us for our services that works in our practice.

Many of our larger clients see the value in the F class model, but many smaller clients are completely happy with the embedded model and understand that I have a cost of doing business in delivering financial advice and information to them as it is required. For these smaller clients we have told them that once their assets hit a certain level we will transition their accounts to F Class if they desire that model in the future.

Surely, we can’t believe as a industry that we want to offer full product choice to help investors meet their retirement needs, but yet there is only one way that is “correct, fair, transparent and reasonable” to allow advisors to be compensated for their activities, this can’t really be where we are going in this industry in Canada, once again a country based on freedom of choice.

We must understand that their is multiple avenues of current disclosure available today to the investor in paper form, as well as on the internet and client’s and investors alike can research and choose to deal with advisors that they wish to going forward. If the DSC and LSC and FE models with embedded fees are bad for the client’s we will see over time assets start to move (as they already have) to perceived better models as investor are not herds of cattle that do no have intelligence to research and ensure that they are knowledgeable on their relationship with their advisor of their choosing!

By simply legislating only one model of compensation as the law of the land, this won’t make the industry more professional, and I completely disagree with these thoughts.

Also, in regards to fiduciary duty, I don’t know any advisors of ethical competence that have recommended one fund company over another, simply because they received a ticket to a hockey game? And even if that was the case what if those funds turned out to be excellent investments and the client’s were very happy with the fund and their performance and their advisor, what does this mean, it means nothing! The drive to possibly enhance fiduciary duty in the industry I believe is completely driven by lawyers for easier ability to sue advisors on behalf of unhappy client’s based on market performance, not any bad faith choice by the advisor when recommending a fund over another to a client. It is very important to understand that client’s are disclosed again in writing that they are purchasing a investment that has market risk and advisors can only analyze funds based on past performance, consistency and other characteristics in their peer group, but none of this past performance guarantees any future performance. It is most important to understand that the advisor has no control over what the professional money manager purchases and sells inside the portfolio and this has a direct impact on the performance of the investors investment in the future, we as the advisor have no control over the performance of the investment, so it is completely unacceptable to suggest that we do!

In closing, we agree that disclosure is important, but there is already significant disclosure for the investor (ie fund fact sheets) which have cost the fund companies significant investments to ensure that there is fair and true disclosure of all fees and costs, if client’s choose to not read the disclosures, and ensure they understand then they need to ask their advisor for further information. Any ethical advisor or financial institution in Canada will be happy to explain in further detail to their valued clients this information and the investor needs to be held to account as well for decisions they make, as they are not forced to buy any funds, sell any funds or invest in any specific investment vehicle in Canada, they are free to do what they wish!

Unlike the writer of this article I am happy to put my name on my commentary, I would be very interested to see if this person is a advisor, and if in his/her career every sold DSC, LSC, FE (embedded fee) products or did they actually start with their first client always using a fee for service model, let’s be fair and I am hopeful that you can tell us all why you think one choice fits all Canadian investors!

Andre St. Arnault
Financial Advisor

Friday, Jan 11, 2013 at 11:49 am Reply