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Anthony Layton MBA, CIM

Chairman & CEO, Portfolio Manager

Peter Guay MBA, CFA

Portfolio Manager
Contact
  • T514.875.7566 x 224
  • 1.800.875.7566
  • F514.875.9611
  • Place Alexis Nihon
  • 3400 de Maisonneuve Ouest,
    Suite 1501
  • Montreal, Quebec H3Z 3B8

Fiduciary Duty: Putting the Client’s Interests First

December 24, 2013 - 0 comments

How Canadians are charged for investment advice – and how this is disclosed to them – has long been a subject of debate. Although it has become increasingly clear that tougher new rules on investment-advisor compensation are needed, it doesn’t appear to be on the radar screens of Canadian securities regulators.

An industry report presented last week stated there is no need to clamp down on how advisors are compensated for selling investment products, and on the requirements for disclosing this information. The excuse offered in the report is that advisors in this country already are heavily regulated, and that any tightening of the rules could result in potentially higher costs to clients.

A commentary article in the Globe and Mail newspaper last week rightfully took issue with this validation of the status quo. The author called for the regulations that would “force the industry to end its opaque commission practices and put an end to egregious conflicts of interest and start treating clients as if their interests actually come first.”

PWL Capital Inc. shares the author’s views. Our firm has long used a fee-based model that charges clients according to assets under management. This practice eliminates conflicts of interest related to specific products that are bought and sold in a client’s account, and encourages the growth of assets in a portfolio. As the article mentioned, advisors in Britain are now under tighter regulations, and this also is the case in many other countries including Australia, New Zealand and Switzerland. Progress in this area is being made in the United States, where an important new advisor association, Zero Alpha Group (ZAG), is promoting the establishment of minimum acceptable standards of practice for discretionary portfolio management.

At PWL, we are completely transparent in disclosing how we charge for our services, and we believe this approach should be the standard practice for all financial advisors. We believe passionately in fiduciary duty, which requires the advisor to act in the client’s best interests. Ironically, the Canadian Securities Administrators – the national body that groups together provincial securities regulators and the group that has deferred action that would tighten the rules – agrees that fiduciary duty is of crucial importance. In a 2012 report, the CSA stated that “the debate has highlighted the need to consider enhancements to investor protection where advice is being given to investors since it is the advice that will often determine a client’s decision to invest.” It listed five principles of fiduciary duty to which advisors must adhere:

  • Client interests are paramount
  • Conflicts of interest are avoided
  • Clients are not exploited
  • Clients are provided with full disclosure
  • Services are performed reasonably prudently

As a member of the Investment Industry Regulatory Organization of Canada (IIROC), which represents the investment dealers across the country, PWL is committed to working within the industry to effect change that will ensure all financial advisors work in the best interests of their clients. We will be presenting more information on this important subject in the coming months. 

By: Anthony Layton & Peter Guay with 0 comments.
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