As part of its initiatives to protect investors, the Canadian Securities Administrators published two separate notices concerning registration requirements of dealers and representatives and embedded commissions.
The first publication forwards changes to the registrant conduct provisions in order to address conflicts of interest and better align the priorities of securities advisors, dealers, and representatives to those of their clients.
In a Q&A on GetSmarterAboutMoney.ca, Ontario Securities Commission (OSC) Compliance and Registrant Regulation Branch (CRR) director Debra Foubert explained that these reforms provide improvements to the core responsibilities of registered firms and their representatives and tackle conflicts of interest, suitability, know your client, know your product and relationship disclosure.
“What this means is that the changes at the core of the Client-Focused Reforms require registered firms and their representatives to promote the best interests of clients and put clients’ interests first. This is a fundamental change that focuses on the client’s interests in the client-registrant relationship,” she said.
The other notice talks about a three-component policy decision relating to embedded commissions in mutual funds. OSC senior legal counsel Chantal Mainville said the notice proposes to junk all forms of the deferred sales charge (DSC) options and their associated upfront commissions. The notice also pushes for the removal of the payment of trailing commissions to discount brokers.
“Further, through the Client-Focused Reforms, the conflict of interest rules will be used to address the conflicts of interest that arise from the payment of embedded commissions. Registered firms and their representatives will be required to address conflicts of interests in the best interests of clients or avoid the conflict,” Chantal said.
Chantal stressed that such change would force dealers to shift to more apparent forms of compensation for mutual fund purchases such as front-end commissions. This would mean better cost transparency.
For Foubert, these notices will improve disclosure requirements which will, in turn, help investors understand what types of services and products .they are going to get from a firm even before they choose to enter into a relationship with a registered firm.
“In our view, the new relationship disclosure requirements will ensure that clients know what they are getting before they enter into a relationship with a registered firm and therefore, are more likely to find the right relationship that meets their needs,” she elaborated.
