For Immediate Release
October 25, 2012

Canadian Regulators Publish Consultation Paper
on a Statutory Best Interest Duty

Toronto – The Canadian Securities Administrators (CSA) today published for comment CSA Consultation Paper 33-403 The Standard of Conduct for Advisers and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice is Provided to Retail Clients.  The Consultation Paper explores the potential benefits and competing considerations of introducing a statutory fiduciary, or ‘best interest’, standard for advisers and dealers when they provide advice to retail clients.

“The application of such a standard has been the subject of much debate in Canada and internationally, and requires careful consideration to determine the right solution for the Canadian context,” said Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission. “Today’s Consultation Paper demonstrates Canadian securities regulators’ commitment in examining opportunities to improve the relationship between clients and their advisers and dealers in order to ensure effective protection for Canadian investors.”

The Consultation Paper looks at it from a number of perspectives and examines whether a statutory best interest standard should be adopted, whether another policy solution would be more effective or whether the current Canadian standard of conduct framework is adequate. 

The CSA welcome feedback from investors and market participants on the Consultation Paper. All comments will be reviewed carefully and will inform the CSA’s decision and next steps. The Consultation Paper can be found on CSA members’ websites.  The comment period is open until February 22, 2013.

The CSA, the council of the securities regulators of Canada’s provinces and territories, coordinates and harmonizes regulation for the Canadian capital markets.

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For more information:

Carolyn Shaw-Rimmington    Ontario Securities Commission 416-593-2361	Mark Dickey Alberta Securities Commission 403-297-4481
Sylvain Théberge Autorité des marchés financiers 514-940-2176	Richard Gilhooley British Columbia Securities Commission 604-899-6713
Ainsley Cunningham  Manitoba Securities Commission 204-945-4733	Wendy Connors-Beckett New Brunswick Securities Commission 506-643-7745
Tanya Wiltshire Nova Scotia Securities Commission   902-424-8586	Dean Murrison Saskatchewan Financial Services Commission 306-787-5842
Janice Callbeck PEI Securities Office Office of the Attorney General 902-368-6288	Doug Connolly Financial Services Regulation Div. Newfoundland and Labrador 709-729-2594
Helena Hrubesova Yukon Securities Registry 867-667-5466	Louis Arki Nunavut Securities Office 867-975-6587
Donn MacDougall                              Northwest Territories                                      Securities Office                                             867-920-8984

                                                  

Backgrounder: Summary of Proposed Changes to National Instrument 31-103 related to Cost Disclosure and Performance Reporting – Client Relationship Model Phase 2

Published on June 22, 2011, the proposal to amend National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), would require registered dealers and advisers to deliver enhanced disclosure about the costs of investing and investment performance reports to their clients.

In response to public comments, today’s publication includes some amendments to the 2011 Proposal and some new requirements to make the information investors receive more complete.

This as an important investor protection initiative.  By informing investors of the costs and performance of their investments, investors would be able to assess their progress toward meeting their investing goals and the value of the professional advice they receive. The federal Financial Literacy Task Force Report states that “increasing the knowledge, skills and confidence of Canadians to make responsible financial decisions will help them meet their personal goals, enhance their quality of life and make Canada more competitive.”

The proposed amendments are intended to form a common baseline for reporting to all investors. They would apply in all CSA jurisdictions, and we would expect the requirements for members of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) to be materially harmonized.

Core Elements of the 2011 Proposal - Unchanged In Their Essentials

• Costs: relevant information at a relevant time:
• at account opening – general information about what to expect;
• when transacting – specific information about the cost; and,
• an annual report showing costs and any other incentives the dealer or adviser has received – such as the actual dollar amount of trailing commissions they were paid in respect of a client’s mutual funds.
• Performance Reporting: an annual investment performance report displaying:
• money in,
• money out,
• change in value (in dollars, for past year and since inception of account); and,
• annualized total percentage returns:
• for the past 1, 3, 5 and 10 years, and
• since inception

2012 Proposal: New Proposed Requirements

• Disclosing the dollar amount of commissions paid to dealing representatives on fixed income transactions (e.g.: bonds) to provide more clarity about embedded fees and dealer incentives. There would also be a notification regarding possible additional dealer firm compensation embedded in the price of fixed income securities.

• Expanding the scope of account statements to provide more complete information to investors, regardless of the technicalities of how their securities are held. Currently, back office arrangements (i.e.: whether a client’s securities are held in “nominee name” by their dealer or “client name” at the issuer of the securities) can mean investors do not get the same information about all of the securities they own.

• Establishing a standardized method for determining the market value of securities to ensure consistency in reporting to investors. This uses a hierarchy of methodologies reflecting available information, subject to adjustment, based on the registered firm’s exercise of professional judgement.

• Special reporting for scholarship plans that addresses the costs and risks that are unique to scholarship plan investments. These costs include front-loaded enrolment fees. The risks relate to failing to maintain the prescribed payments and the beneficiary not attending a qualifying educational program