Client Focused Reforms: Putting Clients First

By iA Private Wealth, April 25, 2022

Finding an Investment Advisor who provides unbiased, professional advice is foundational to a successful relationship. Securities regulators recognize this important aspect of the investor experience and continue to enhance regulations that focus on building trust.

Over the years, improved disclosure, reporting and fee transparency have refined the overall client experience. In 2021, Client Focused Reforms (CFRs) were introduced to help ensure that clients are the top priority in a client-advisor relationship. As the Canadian Securities Administrators (CSA) continues to implement new rules that put clients’ best interests first, we welcome these efforts to uphold a consistent and high standard of care for clients.

Conflicts of interest

Reforms implemented last year require registered dealers and the advisors who work for them to inform their clients of any conflicts of interest that may arise. The CFRs place the onus on dealers and advisors to explain in clear and straightforward language what these conflicts of interest might be and how they will address them in the best interests of their clients.

An example of a potential conflict of interest would be if an advisor is in a position to earn higher compensation for selling a certain type of product, or where the dealer might stand to receive a greater benefit, such as “proprietary” mutual funds managed and operated by the firm.

With the rollout of the CFRs, the advisor needs to prove the chosen product is truly in a client’s best interests and is most appropriate for their particular circumstances – even if a similar, lower-cost solution is available. The advisor must document this discussion and any decisions emanating from it, with justification as to why the recommended product is most appropriate. Many advisors have already been doing this in their practice, but now there’s a universal framework to formalize the process.

Suitability of investments

Advisors continue to be responsible for determining if an investment is suitable for a given client, and the CFRs help them accomplish this important task. The advisor can gain greater insights into each client through an enhanced Know Your Client (KYC) document. An advisor uses the KYC to gather an expanded range of information about a client’s financial situation, risk tolerance, time horizon and investment objectives, while making a reasonable effort to keep the KYC updated in a timely manner as a client’s circumstances change.

Also, the Know Your Product (KYP) requirement ensures that advisors maintain strong knowledge of any securities they recommend and buy/sell on behalf of their clients. Factoring into an advisor’s recommendation is the robust understanding of a product’s primary characteristics, risk potential and total costs (and how, over time, those costs may impact a client’s return on investment). The dealer firm is required to implement specific procedures and controls to properly assess and monitor any investment security available to clients.

Enhanced disclosures

Upon opening a client account, dealers and advisors must deliver enhanced information to give clients a sound understanding of their overall offering. This information includes disclosing which products and services might be available (or unavailable) to the client, how advisors are compensated, what types of costs the client may incur through their ongoing relationship, and what specific responsibilities the dealer and advisor have when serving clients and managing their accounts.

The measures contained within the CFRs help to educate clients, inform their investment decisions and keep their interests at the forefront. While it involves additional time and effort for the dealer and advisor, there isn’t any action required on the part of the investor. For iA Private Wealth, the CFRs are a welcome development as they reaffirm our longstanding commitment to meeting the highest standards of integrity, transparency and professionalism.

We’re proud to focus on our clients’ best interests as we help them achieve their financial goals. If you have any questions about these changes, reach out to your advisor directly or contact us today.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.