Last November, IIROC released a white paper outlining a potentially game-changing proposal for mutual fund advisors.
Under the proposal, IIROC would:
- eliminate the proficiency upgrade requirement, enabling firms and individuals to offer only mutual funds and exchange-traded funds (with appropriate adjustments for the relative risk of such firms and individuals to IIROC’s proficiency, supervisory and oversight requirements); and
- allow all firms and individuals under IIROC’s regulatory oversight to take advantage of directed commissions.
The Investment Industry Association of Canada (IIAC) has submitted a comment letter that supports the first part of the proposal. The industry group said it “cannot put forward a position on commission redirection because IIAC member firms are divided on the merits of the proposition.”
IIAC identifies the following investor benefits of the arrangement under the first part of the proposal:
- “One-stop shopping,” which would bolster consumer convenience, provide greater flexibility, and potentially lower costs as investors access the full range of investment products through a single dealer, rather than having to migrate assets to a new firm when they wish to build a more diversified financial portfolio or become more sophisticated over time.
- Suitability decisions would be more precise as advisors could take a more holistic view of the overall client portfolio when decisions are made.
- The standard of investor protection would not be compromised in any way, as the mutual fund advisor would be subject to IIROC oversight and supervision. The long history and high reputation of IIROC as a self-regulator could in fact boost investor confidence.
Impact for firms and individual reps:
- For registered firms, the elimination of the proficiency upgrade requirement would allow many small, mid-sized and large IIROC firms, with different business models and firm structure, to reconfigure operations to generate significant cost savings.
- For registered individuals, the removal of the requirement would provide registered mutual fund advisors with greater professional choice among firms, expanding the range of employment options, from mutual fund dealers to IIROC registered dealers. Mutual fund registrants would have to weigh these benefits against advantages under the MFDA regime, such as the ability to maintain accounts in client name (held with the mutual fund company) and the ability to redirect commissions.
The letter also notes that “the elimination of the upgrade requirement would encourage a closer relationship between the SROs, producing greater rule harmonization and levelling the playing field for registrants and firms selling mutual fund products.”