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UK FSA Publishes New Rules to Remove Commission Bias |
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The UK FSA has today published new rules to remove commission bias from advice on retail investment products.
Sheila Nicoll, FSA Director of Conduct Policy said: "If this market is to survive, and thrive in the future, people need to know their adviser is acting in their best interests ... It is vital that consumers know not only the cost of financial advice, but also its value. There is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving." |
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FAIR Canada recently issued a 21-page report entitled "Canadian Money Market Funds - Zero Returns" |
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Most Money Market Funds (MMFs) not making money. The Report found that Canadians hold $56 billion in money market funds earning almost nothing. In the six months to year end 2009, the average Canadian MMF earned just 0.02% after costs, before the impact of inflation and taxes. The average return for the most recent 30 and 60 day periods was 0%. Even worse, fully one quarter of all Canadian money market funds (mostly smaller segregated funds) lost money in the three or six months to December 31, 2009, and continue to lose money.
$300 - $500 million opportunity cost. "Few individual investors are aware that MMFs are now producing zero or even negative returns or that many bank savings accounts can produce better returns," said Ermanno Pascutto, FAIR Canada Executive Director. "Canadians are missing out on potential interest income of $300 - $500 million by not shifting their funds into higher-yielding premium savings accounts." (See the calculation in the appendix to the report).
FAIR Canada - Zero Returns Report calls for improved disclosure of returns and fees. "Investors have a right to know when returns on a safe "savings account" type investment like a MMF fall to zero or (in the case of some segregated fund MMFs) turn negative. Investment advisors should act in their clients' best interest and consider recommending to their clients that they switch from MMFs to alternatives like CDIC-insured premium savings accounts, if there are no other compelling reasons to keep them in MMFs," said Mr. Pascutto.
Click here to read the full report. | |
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| Putting the Client's Best Interests First |
Panel 2 - Jim Allen, Peter Smith, Jacquie McNish, Janis Sarra and Cary List
 | FAIR Canada/Hennick Centre Conference: The Fiduciary Standard and Beyond
On March 25, FAIR Canada and the Hennick Centre for Business and Law hosted the first Canadian conference focused on the fiduciary standard in the context of the financial advisor-client relationship. At the conference, the question of whether investment advisors should be required to put their clients' best interests first was considered in the context of the US proposal to implement a uniform fiduciary standard for all advisors and broker-dealers.
Questions discussed at the conference included:
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Are investors getting the advice they need from their financial advisors?
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Who do financial advisors serve first - the client, the firm, or themselves?
- Do clients understand the services they are getting?
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Would the introduction of a statutory fiduciary standard improve investor protection and the enforcement of securities laws?
- Would better fiduciary standards have prevented recent financial scandals?
The conference brought together experts from Canada, the US and the UK. The program's ultimate objective was to inform and motivate relevant policy initiatives in Canada through discussion and comparative analysis. The full Conference programme, background materials and photos from the event are available at www.faircanada.ca.
Some of the key issues discussed at the conference were as follows:
1. Role of the advisor needs to be clarified.
Many investors believe that advisors are required to act in the client's best interests. Both clients and advisors could benefit from greater clarity about the advisor's role.
In Canada, advisors are currently required to follow a suitability standard, and must act honestly, fairly and in good faith with their clients. But they are not always required to put their clients' best interests ahead of their firm's and their own interests. This means that an advisor may offer a client investment advice that, while "suitable" for the client, may be more costly and not necessarily in the client's best interest.
In the absence of a statutory fiduciary duty or other requirement to put a client's interests first, clients need to be clearly told that the advisor is selling a product without an obligation to put a client's interests first. The advisor should also be required to clearly explain all of the fees (and sources for those fees) payable by the investor in connection with the sale of an investment product.
2. Need more clarity in Canada about fiduciary duties.
The law on fiduciary duties in Canada remains unsettled and evolving. A number of Canadian litigators, including Joe Groia, Kelley McKinnon, Ellen Bessner, Laura Paglia and Pierre Paquet explained that, while there is no fiduciary standard imposed by securities law on financial advisors, it may be possible to find that a fiduciary relationship exists based on the specific facts of a case. Courts have generally found fiduciary duties in client-advisor scenarios where elements of trust, confidence, vulnerability, and reliance on skill and knowledge and advice are present. The principal remedy for the breach of a fiduciary duty in the investment context is the full return of an investor's funds (including any commissions earned). It is worth noting that the concept of the statutory fiduciary duty exists for investment fund managers and pension plan administrators.
3. A clear fiduciary duty could be a useful, additional investor protection tool.
Although no consensus was reached about whether the introduction of a statutory fiduciary duty would help with enforceable remedies for investors, it was clear that a finding of a fiduciary duty can be helpful to investors because full compensation is awarded. Janis Sarra (Professor of Law, UBC) noted that a clearly articulated fiduciary duty could also assist advisors in understanding expectations from clients, and ultimately lead to a higher standard of diligence and professionalism in the advisory community.
4. Canada should consider developments in the US and the UK.
Tamar Frankel (Professor of Law, Boston University) and Knut Rostad (Chairman, The Committee for the Fiduciary Standard) discussed the initiative under the US Financial Regulatory Reform Bill, supported by The Committee for the Fiduciary Standard, to introduce a uniform, statutory fiduciary duty for all investment advisors and broker-dealers. Broker-dealers in the US are currently subject to a suitability standard, while investment advisors are statutorily required to follow a fiduciary standard. Knut Rostad highlighted five core fiduciary principles associated with the proposed fiduciary standard.
Click here for full story and conference programme. | |
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