Regulators say advisor awards based on production may mislead clients

Pay-to-play advisor rankings or recognition based on a rep’s production could deceive investors, according to the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO). The regulators are warning firms and reps about compliance violations that may arise through their involvement with these kinds of programs.

In a message to registered firms, the CSA and CIRO issued a warning about the criteria used in advisor rankings that investment firms or reps may tout online as a marketing tool. The regulator stressed that a rep’s sales or revenue-generating performance isn’t a measure of their quality or proficiency as an advisor, and cautioned against trumpeting honours that may be based on their production.

“If a prestigious sounding award or recognition considers the registered individual’s sales activity, revenue generation, or assets under management, this could reasonably be expected to deceive or mislead a client as to the proficiency, experience, or qualifications of that registered individual,” the regulators warned.

Referencing these kinds of awards on a firm’s or a rep’s website or on social media “will be considered a compliance deficiency,” they said.

“A registered individual must not use that award or recognition in client-facing interactions, including any marketing or client communications such as webpages or LinkedIn profiles.”

The regulators also suggested that participating in these kinds of recognition programs at all could be a compliance issue.

“Even in cases where the award or recognition is not referenced in advertising or marketing materials issued directly by a registered firm or individual, the publication of the results by the contest sponsors could be seen as a compliance deficiency,” they said.

The regulators also expressed skepticism about recognition programs that claim not to be based on an advisor’s production.

“Even where the stated ranking criteria is not based on sales activity, revenue generation, or assets under management, the actual results we have observed in certain cases would suggest otherwise,” they said.

The regulators recommended that chief compliance officers and ultimate designated persons monitor their reps’ participation in any advisor ranking contest.

To ensure compliance with this guidance, the CSA and CIRO called on firms and reps to remove “references to the award or recognition in any marketing or client communications including on webpages or LinkedIn profiles.”

The regulators indicated that while they won’t be scrutinizing past participation in these sorts of programs, they will be assessing compliance during its routine reviews and “will use all tools available along the compliance enforcement continuum to address any non-compliance.”

This article has been updated to add that the rest of the CSA and CIRO also issued the warning.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.