OSC faces backlash on fiduciary standard

Sparks flew at the Ontario Securities Commission’s headquarters today as industry and investor advocates clashed over whether to introduce a best interest standard for advisors.

Read: Advisors, clients benefit from fiduciary standard: FPC

The regulator hosted a five-person panel and took audience statements.

Connie Craddock, member of the OSC Investor Advisory Panel and a retired vice president of public affairs at IIROC, linked the best interest issue with calls to get rid of third-party fund commissions.

She compared that compensation structure to pharmaceutical companies paying doctors every time they prescribed certain drugs.

And the problem doesn’t just lie with rogue advisors, Craddock stressed. Clients are vulnerable to fee-related conflicts even when their advisors are fully compliant.

Read: Fiduciary duty will raise costs: CSA roundtable

One audience member took issue with the doctor analogy, suggesting that if all fund manufacturers pay roughly the same commissions, there’s no incentive to favour one provider over another.

Panellist Jim Kershaw, senior vice president and regional manager at TD Wealth Private Investment Advice, is against the best interest standard. He says the problem facing the industry “is not inadequate regulation, but inadequate enforcement of existing regulations.

“How tough is it to become a licenced advisor in Canada today? Two courses and a job offer—and the courses aren’t even that hard. Shouldn’t being an advisor in the context of the uncertainty of the capital markets be one of the toughest jobs to get, and one of the easiest jobs to lose?”

Read: Raise advisor standards

On the other side of the argument, Anita Anand, a law professor at the University of Toronto, said most investors believe their advisors have legal duties to put their clients’ interests first. If they knew this actually wasn’t the case, many would speak out against the status quo.

Yet several audience members argued nearly all advisors would say they put clients first. Sandra Kegie of the Federation of Mutual Fund Dealers said she’s interviewed “thousands of advisors, and there isn’t a single one who didn’t think [he or she] had a best interest standard they owed clients. This is where clients get the idea—their advisors are telling them.”

The panel moderator, James Turner, vice chair of the OSC, quickly responded by saying if advisors are already acting like fiduciaries, then there should be no objections to putting it on the books.

Read: Disclosure is broken: CSA best interest roundtable

John Fabello, a partner at Torys LLP, argued the existing common-law standard keeps advisors in check. When a case comes to court, “The onus is on the broker to disprove [he or she] acted inappropriately,” he said. Common law, instead of a statute, gives judges flexibility when adjudicating complex and fact-specific cases.

Steven Donald from Assante Wealth Management suggested regulators wait to see the impact of the fiduciary standard in the U.K. before implementing one here. He also said CRM II may address the concerns of those who support the best interest standard.

Marian Passmore, associate director of FAIR, rejected this view, suggesting “it’s a delaying tactic used by the industry to prevent movement on this issue. CRM II will not deal with the conflicts of interest inherent in the existing system. And while it will be interesting to see what happens in the U.K. and Australia, it’s not determinative of how things will unfold here.”

Read: Congress members say fiduciary duty could curb access to advice