IIROC has issued final guidance to clarify the products, tools and information that order-execution-only (OEO) firms can provide to investors.
Of note, the guidance says model portfolio tools are generally considered recommendations and therefore aren’t suitable for OEO firms, which take advantage of the suitability exemption, to use with clients.
However, certain model portfolios are excepted. IIROC calls these “permitted model portfolios,” and they must:
- be limited to class of investor, asset class, industry sector and/or time horizon,
- refrain from referencing specific securities or issuers and
- be available only on OEO firms’ websites to be pulled (not pushed) by the client, without firm prompting or influence.
As such, permitted model portfolios don’t influence clients’ investment decisions, and thus can be used by OEO firms.
Read the full IIROC guidance here.
Also of note, the SRO says in an accompanying notice that it expects OEO firms to make available, whenever possible, funds that don’t pay trailing commissions for ongoing advice—often Series D.
When no Series D is available for a fund and an OEO firm offers a series with a trailing commission, IIROC says it expects the firm to “address the conflict by rebating to the client the portion of the trailing commission for ongoing advice, or taking other similar steps.”
SRO enhances review process and studies advice
In a release, IIROC says it’s also enhancing its process for reviewing and approving changes in dealers’ business models, allowing for efficiency and flexibility.
“IIROC is committed to interpreting its current rules as flexibly as possible, or changing them if necessary, to accommodate new service offerings where appropriate, without compromising investor protection or choice,” says Wendy Rudd, IIROC’s senior vice-president, member regulation and strategic initiatives, in the release. “Our goal is to facilitate innovation and accommodate changes in business models to meet investor needs.”
IIROC adds that it’s working with Canadian Securities Administrators (CSA) on targeted reforms, embedded commissions and other policy initiatives. “As the CSA moves forward with its work, IIROC will adapt its own rules and guidance to be consistent with the CSA’s approach,” says the release.
Further, IIROC is undertaking a study in collaboration with Accenture, involving a focused consultation with industry participants to understand how current rules impact the evolution of advice and service offerings, and where there may be opportunities for improvement.
The study will focus on:
- developing a better understanding of perceived regulatory barriers to innovation,
- facilitating open dialogue with dealer firms about their ideas and what they are seeing on the horizon,
- identifying how regulation may need to change to accommodate innovation and
- looking at how other regulators/jurisdictions have adapted to this evolution.