The Portfolio Management Association of Canada (PMAC) wants the CSA to focus on introducing a nationally harmonized statutory fiduciary duty for all investment accounts that are managed on a discretionary basis, according to its comments on CSA’s consultation paper about enhancing the obligations of advisors, dealers and representatives.
“Investors in each province and territory who have chosen to have their investments managed on a discretionary basis should be afforded the same protections and remedies,” says Katie Walmsley, PMAC’s president.
PMAC’s comment letter further notes that implementing a fiduciary duty of this kind wouldn’t significantly impact registered portfolio managers or their clients, given that these managers are already fiduciaries under common law as well as under statutory provisions in certain provinces.
But PMAC cautions CSA against imposing other duties, namely the proposed regulatory best interest standard. PMAC says that doing so would risk undermining what is already the highest standard of care in the industry. Says Walmsley, “The fiduciary duty is the gold-standard of care for investors.”
PMAC also says it’s unlikely that a regulatory best interest standard would be adopted in all provinces and territories, which would cause more investor confusion and industry fragmentation. Its letter states, “Implementing the regulatory best interest standard in some CSA jurisdictions and not others could result in three separate standards of care owed by investment advisors to clients across Canada.”
These three standards would be: “1) the fiduciary duty for clients with discretionary accounts; 2) the regulatory best interest standard for clients of registrants regulated by the Ontario Securities Commission and the New Brunswick Securities Commission; and 3) the existing duty to act fairly, honestly and in good faith to clients applicable in all other jurisdictions.”
As a result, PMAC suggests CSA “reconsider adopting a nationally harmonized fiduciary standard as a longer-term goal for all registrants providing investment advice,” especially given the “absence of a national consensus on the part of the CSA regarding a uniform standard of care for dealers and other registrants that are not already currently subject to a fiduciary duty.”
PMAC’s recommendations impacting portfolio managers
- The focus should be on principles-based regulation for portfolio managers, meaning a one-size-fits-all approach should be avoided.
- Given the high legal and professional standards already in place for portfolio managers, many of the targeted reforms are unnecessary, overly prescriptive and do not improve investor protection for clients of portfolio managers.
- PMAC disagrees with the need for title reform. “Our understanding is that most portfolio managers use either ‘portfolio manager’ or ‘investment counsellor’ and that these titles are straightforward and accurate.” Further, members said that “the proposed alternatives were too prescriptive, that the term ‘securities’ is too narrow to reflect the broad range of available investments, and that the proposed titles were too long and not intuitive to investors.”
PMAC’s other recommendations
- PMAC supports a statutory fiduciary duty for all registrants managing investment portfolios of clients on a discretionary basis.
- All clients who have granted discretionary authority to an investment advisor should be afforded the same duty of care, regardless of the registration category of the advisor and the investor’s province of residence.
- The CSA has stated that the regulatory best interest standard will not be the same as the fiduciary duty. There is ambiguity and confusion as to how such a standard will be interpreted by the courts and regulators, causing uncertainty and confusion for registrants and investors.
- So, although PMAC supports raising the duty of care in the investment industry in the interest of investors, it is concerned that the lack of agreement among the securities commissions with respect to adopting the best interest standard could result in different standards of care in different provinces, causing confusion for investors.