An interview by Rob Carrick with the OSC’s Rhonda Goldberg posted recently on the Globe and Mail website (March 14) served as a reminder that securities regulators continue to examine the issue of the service and advice that investors receive for their asset-management fees. Investors deserve to know they are paying for this advice as part of a mutual fund’s built-in fees (as indicated by its management expense ratio), and should expect to receive good advice that is in synch with their goals.
While the majority of investment advisors may try to look out for their clients’ best interests, in fact they have no obligation under provincial securities laws to do so. As such, we believe it is urgent that regulators in Quebec, Ontario and other jurisdictions, working in concert through the Canadian Securities Administrators, move ahead as quickly as possible to produce legislation that unbundles mutual fund fees so that investors can clearly see what they are paying for.
One important initiative is the Client Relationship Model, a decade-old process involving the CSA and self regulatory organizations the Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association of Canada (MFDA). These groups are determining whether there is a need to tighten the rules for how investment advisors provide and charge for their services. Under discussion are such critical things as choosing investments that meet the client’s needs, avoiding conflicts of interest and ensuring the client knows what advice to expect and what he or she will be charged. However, under the CRM initiative, it would remain up to the individual advisor to ensure he or she is in fact acting in the client’s best interests.
Existing measures such as the Know Your Client rule and other compliance procedures are supposed to provide a de facto code for advisors to act in their client’s best interests. But there is no actual legal requirement – fiduciary duty – to do so. CRM does not go far enough to protect the Canadian investor and, in fact, appears to be more aimed at protecting the advisor from investor complaints.
Despite the soft nature of CRM, it appears a majority of advisors are against its implementation. A recent survey by Investment Executive, a leading industry publication, showed that 57% of investment dealers’ compliance officers and CEOs said they would not support the introduction of a statutory fiduciary duty on advisors, arguing that the current regulatory frameworks provide adequate protection for investors. The survey results indicate their concern is centered on increased litigation risk to advisors, rather than on improved investor protection.
In the absence of a fiduciary duty requirement, some investment advisors including our firm, PWL Capital Inc., independently have committed to act completely in their clients’ best interests. We do so by engaging in full transparency with our clients, making investment decisions that are completely in synch with the client’s personalized financial plan; building and managing individual portfolios that are efficient, low-cost and risk-measured; disclosing all relevant information and acting independently of any outside influences. We ensure that our clients’ goals are paramount.
We believe our client policies guarantee that we will act in the client’s best interests. Nonetheless, we believe regulations should exist that create a fiduciary duty for investment advisors. To this end, we will continue to lobby the regulators to enact appropriate legislation and, in the meantime, take measures to formalize our commitment to clients by obtaining third-party certification that establishes a fiduciary duty.