There’s an interesting discussion going on in the financial services industry right now that could affect every investing Canadian.
The discussion is between the Canadian Securities Administrators (CSA), the financial services industry and the public. The topic? The Standard of Conduct For Advisors and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice is Provided to Retail Clients. Specifically what they’re discussing is whether to impose what is referred to as a fiduciary duty on advisors.
To understand the significance of this, you have to understand what a fiduciary duty is. According to a CSA discussion paper, a fiduciary duty is a duty to act in another person’s best interest.
What most people in Canada believe is that this fiduciary duty already exists, but as a matter of fact it doesn’t. In other words, your financial advisors have no legal responsibility to act in your best interest.
In my book The Financial Navigator: Managing Your Success, I make no bones about where I stand on this issue. I believe that everyone in the financial services industry (including companies) who give advice should be forced to act in a fiduciary manner. The reason is simple; my job is to provide the best possible advice to my clients regardless of whether it’s to my benefit or not. Without a fiduciary duty, the client’s best interests are not always put first.
What’s most disturbing to me is what the CSA list under “possible negative impact on certain business models.”
Here’s what it reads. “The introduction of an unqualified statutory best interest duty could have a significant negative impact on advisers and dealers whose business involves advice that is specialized or restricted in some way (e.g. some mutual fund dealers, exempt market dealers and scholarship dealers).”
If this doesn’t disturb you let me put this in another way. Why is the CSA concerned about how it might negatively impact advisers and dealers? If those advisers and dealers are truly acting in their client’s best interest then there shouldn’t be a problem. If that’s a problem, then maybe they shouldn’t be in business. Isn’t the CSA’s responsibility to protect the investing public? I thought it was.
As indicated in the CSA Consultation Paper 33-403 the CSA staff identified five key protection concerns:
- There may be an inadequate principled foundation for the standard of conduct owed to clients.
- The current standard of conduct may not fully account for the information and financial literacy asymmetry between advisers and dealers and their retail clients.
- There is an expectation gap because investors incorrectly assume that their adviser/dealer must always give advice that is in their best interests
- Adviser/dealers must recommend suitable investments but not necessarily investments that are in the client’s best interests.
- The application in practice of the current conflict of interest rules might be less effective than intended.
Now go back and read number 3. Wow! I can’t believe why there is such hesitancy to do what’s right. Other countries have done it. Is the financial services industry in Canada so powerful that they can dictate what the regulators can and can’t do? I hope not. I say please, do what’s in the best interest of Canadians and force advisers and dealers to act in their clients’ best interests and stop worrying about the companies and advisers that might go out of business. If making advisers and dealers have a fiduciary duty with their clients drives them out of business, then I’m sure the world would be a better place.
If you’re interested in providing input to the CSA you have until February 22, 2013 to make a submission. A copy of the discussion paper can be found here: http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20121025_33-403_fiduciary-duty.htm