With the client-focused reforms (CFRs) slated to take effect at the end of the year, the Investment Industry Regulatory Organization of Canada (IIROC) has issued new guidance on putting clients’ interests first plus other elements of the new KYC and suitability requirements.
The new guidance, which was out for comment earlier this year, addresses a range of issues that may arise under the new requirements.
For instance, the question is considered of whether dealers and reps are expected to recommend the lowest-cost investment option when they are obliged to put the client’s interest first.
In the guidance, IIROC confirms that recommending the lowest-cost investment isn’t required, but that dealers and reps “must put the client’s interest first before any competing considerations, includ[ing] a higher level of remuneration, when making a suitability determination.”
The guidance also clarifies that the regulators expect reps to consider a “reasonable range of alternatives” that are available to them only through their own dealer. And, it stressed that reps must ensure they put their client’s interest first when selecting among that range of suitable alternatives.
“What constitutes a reasonable range of alternatives will depend on the circumstances, including products and services offered by the dealers, the registered individual’s skill and proficiency and the client’s circumstances,” the regulator said.
The guidance indicates that reps who aren’t qualified to provide advice on all of the products on their dealer’s shelf should disclose that fact to clients.
Plus, it stipulates that dealers must explain the features and costs of fee-based accounts to their clients, and disclose their fee model to clients. Additionally, reps shouldn’t just solely rely on Fund Facts disclosure to assess a client’s portfolio risk.
Another point that the guidance accepts is the recommendation that a client’s desire to invest according to environmental, social and governance criteria, or other personal values, be included in the discussion of clients’ investment objectives.
As with the CFRs themselves, the new guidance takes effect on Dec. 31.