IIROC’s proposed guidance for discount brokers could take away tools that make for better informed investors, says Edward Kholodenko, chief executive of Questrade.
The proposal would affect add-ons, such as newsletters and stock screeners, offered by Questrade, BMO InvestorLine, Scotia iTrade and other online brokers. Information tools are in the “best interest” of clients, Kholodenko says, who are seeking more data for their investments and will look elsewhere if online brokers can’t provide it.
“Depending on how IIROC wants to view some of these things, it would be very detrimental to take them away,” he tells Advisor.ca.
“You’re not going to shut it down,” he adds. “There’s tons of data out there, and wouldn’t it be better if it was provided to them through the IIROC member firm, where it’s at least regulated, because, who knows what these other providers are throwing out there? They’re not really responsible for anything.”
In December, IIROC published proposed guidance for order-execution only (OEO) services, or online discount brokers that take advantage of the OEO suitability exemption. That exemption allows the services to accept orders without complying with advisor suitability rules as long as they do not provide recommendations to the client.
“If your model portfolio is telling you to buy stock X, stock Y, stock Z, and that bond over there, that starts to look an awful lot like advice,” Andrew Kriegler, president of IIROC, said at a conference in March. “The regulation of those different service delivery models needs to be more proportional to the service offering, and the risk being delivered to the client.”
Kholodenko argues a better informed investor is a better investor. He points to third-party newsletters, which may recommend stocks, as an example of a tool the OEO proposal could remove from Questrade.
Individual investors understand they are responsible for protecting their own investments, he adds.
“In a situation where they are in charge of their own finances, why would anybody, outside of the client themselves, think that they know better than the client?” he says. “It’s their hard-earned money.” Questrade made similar arguments in its comment letter to IIROC.
Kholodenko says his firm, the country’s largest independent online broker, continues to grow. It now has “hundreds of thousands” of clients and more than $5.5 billion in client assets, he says, and it’s adding more than 30,000 accounts annually.
The Canadian Foundation for the Advancement of Investor Rights, in its response to the proposal, said IIROC was interpreting the word “recommendation” too broadly. It urged the body “to make it a priority to prohibit OEO platforms from selling products with embedded trailing commissions before resources are expended on regulating the tools OEO firms provide.”
Scotia iTrade said the proposal would “alter the existing OEO model” and diminish the role of discount brokers in the market “to the detriment of investors.”