Will CSA’s targeted reforms hurt clients?

By Katie Keir | October 3, 2016 | Last updated on September 21, 2023
4 min read

The financial industry has more questions than answers about CSA’s proposed targeted reforms and best interest standard (BIS), says the IIAC in its comment letter.

While the IIAC says it “applaud[s] the CSA’s ongoing review and consultation concerning the Canadian registrant regulatory framework,” it notes the proposals were “described in broad strokes” and that there’s uncertainty as to how the reforms and BIS will be implemented and enforced.

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“Given a general lack of detail and parameters on the proposals, we found it challenging to respond with greater particularity.”

Michelle Alexander, IIAC vice-president and corporate secretary, gave Advisor.ca examples of how the proposals don’t account for what’s already been implemented. “CRM changes were designed to improve and enhance the advisor-client relationship model as a whole, and to make sure that clients understand how [that] relationship works,” she says. “It seems like it’s now been decided that that’s not important, and we’re moving to something else.”

She adds, “[CSA has] decided they want to add new provisions to the relationship disclosure document used by advisors, which is a brand new document that firms have spent a lot of money and time on.” Making further changes to this document, she explains, seems premature.

Alexander notes, “Some of the CSA’s targeted changes aren’t going to be practical or meaningful for clients. For example, CSA wants firms to disclose the proportion of products that are proprietary on KYC documents, whether that’s 20%, 40% or 90%. But how is that going to impact clients?

Further, she adds, CSA wants advisors to be knowledgeable about all of the products that their firms offer. “But, when you think about how many products a bank-owned firm might offer […], [advisors] could be spending more of their time reading up on products than advising clients. There are a lot of unintended consequences that [the IIAC] is concerned about.”

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One of these consequences, predicts Alexander, is firms could cut the size of their products shelves to ensure they meet regulatory requirements. As well, making additional changes to firms’ training programs and documents requires adds to the regulatory burden on firms and advisors.

One option is for the CSA to conduct “a serious cost-benefit analysis of these proposals. When the proposals first came out about the best interest standard, that was one of our comments. And four years later, nothing has been done.”

This is unacceptable, says the IIAC in its comment letter, because “the additional regulatory burden sought to be imposed through the targeted reforms and best interest standard will result in significant costs which have not been considered in the proposal. It is likely that at least some of these costs will be passed along to clients.

“And, clients will likely suffer other types of disadvantages as a result of these proposals: as costs continue to rise as a result of the dramatically increasing regulatory burden, many dealers have implemented minimum account size thresholds because it has simply become uneconomic to handle small accounts.”

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Alexander says, “We’re in the midst of doing such an analysis on CSA’s targeted reforms. We will submit it, and we hope CSA will consider it and do their own.”

Currently, CSA is working on measuring the impact of CRM requirements and POS amendments. Its multi-year research project will look at how these changes are impacting the knowledge levels, attitudes and behaviours of investors. It will also look at the practices, fund fees and products being offered by registrants.

Too much change?

The IIAC is “concerned that the Consultation Paper contemplates sweeping changes for all registrants without regard to the substance and structure of the existing rules that govern IIAC members. […] We wonder whether the CSA’s concerns are predominantly related to select registration categories with lower standards than IIROC registrants adhere to.”

For their part, says the IIAC, IIROC firms and advisors are already dealing with the implementation of CRM2 and POS requirements, and the costs involved with that.

Read: PMAC to CSA: Focus on fiduciary duty, not best interest standard

More importantly, adds the IIAC, “We do not agree with the characterization of the CRM and POS reforms as mere disclosure initiatives. The CRM initiative, which covers rules related to conflicts management, has already resulted in significant changes to business conduct and models.”


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Katie Keir

Katie is special projects editor for Advisor.ca and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at katie@newcom.ca.