The Canadian Securities Administrators (CSA), the umbrella organization of Canada’s provincial and territorial securities regulators, including the British Columbia Securities Commission (BCSC), has developed a comprehensive set of new rules, known as Client Focused Reforms.
These new rules are meant to protect retail investors in their dealings with registered investment advisors and firms (we refer to them collectively as registrants). They are also meant to provide more transparency for investors, and create a uniform standard for advisors and firms across Canada.
The first phase of the Client Focused Reforms implementation is the conflict of interest rules, which went into effect on June 30, 2021. The rest of the reforms, including the relationship disclosure reforms, will come into effect on December 31, 2021, bringing the whole rules package into force across the country.
This article discusses what you, as an investor, can expect to see in these new relationship disclosure rules.
What You Can Expect From the Client Focused Reforms
Under the Client Focused Reforms, your investment advisor and firm must resolve any material conflicts in your best interest.
Under the new rules, registrants must provide clients with more information about any limits on the products they offer, as well as the costs and risks associated with them.
Here are some key highlights of the new rules:
- Registrants must put your interests first when determining the most suitable investment product for you.
- As part of the “know your product” obligation, firms and investment advisors must take reasonable steps to understand the securities (we’ll call them investments from now on) that they purchase, sell, or recommend to you. This includes understanding the impact of initial and ongoing costs associated with acquiring and holding each investment product.
- Under the new rules, registrants now need to create a “risk profile” for you. The profile combines your risk tolerance (how comfortable are you with losing money) and risk capacity (the ability to withstand losses). They must review this with you too. This is part of enhanced “know your client” (KYC) requirements. During the KYC process, registrants must also document crucial information about your personal and financial circumstances. Investment advisors must also take reasonable measures to update the KYC information regularly.
- Firms and investment advisors now need to provide you information about investing costs (including compounding effects), and any limitations relating to the products and services offered (for example, if you will only be offered proprietary products). When recommending a proprietary product, your investment advisor should be able to demonstrate that the product is competitive and of a similar quality to other products in the market.
- There are also new provisions that prohibit firms and individual investment advisors from holding themselves out in a way that could mislead you about their qualifications or proficiency. For example, individual registrants can’t use sales-based titles or titles such as “vice-president”.
Working with Your Registered Investment Advisor
The best way to take action in any advisor-client relationship is through proactive communications. Take an active role in your relations with your registered advisor by following these steps:
- Ask your advisor about the suitability process: This will give you a good understanding of how it works, and provide an opportunity to update it if needed.
- Be sure that you understand what is said: Seeking clarity about products and risks you are unsure about is always a good idea. If you don’t understand something, or you are uncertain of an explanation that is given to you, ask again.
- Ask about fees and total costs: It’s important to know how much you are paying for services and investment, as it affects your overall returns.
- Get information in writing: Ask for information you are concerned about in writing. That could come in the form of an email, for example. Be sure to keep the information in your files.
- Bring up any perceived conflicts: If you feel there is a conflict of interest, be sure to bring it up with your advisor. For example, talk to your advisor if they only offer you their proprietary investment products, even though there may be other products in the market that may be more suitable for you. If you aren’t satisfied with their answer, bring it up with their firm.
How to Deal with Questions or Concerns
Begin by discussing the issue you are concerned about with the firm or investment advisor you are dealing with. If you are not satisfied with their answer, contact a securities regulator. Our File a Complaint section walks you through this process. If you need more help, feel free to call or email the BCSC directly at 1-800-373-6393 or [email protected].
The client-advisor relationship is a two-way street, and it’s important to know what your responsibilities are.
Monitor your portfolio and review your statements even after you have chosen your investments. Don’t hesitate to call your advisor if you have any questions or concerns.