FAIR Canada
FAIR Canada Newsletter
PUTTING CLIENTS' BEST INTERESTS FIRST
May 2010 
Greetings!

Welcome to FAIR Canada's newly formatted newsletter! This edition is focused on the importance of putting clients' best interests first. Regulators and governments around the world are actively engaged in the debate about how to align the interests of financial advisors and clients. Some have proposed introducing a statutory fiduciary duty (US and Australia), and others are looking to ban compensation practices that are inconsistent with the goal of putting a client's interests first (UK and Australia). This is a very important and timely debate. FAIR Canada urges regulators, governments and the financial industry in Canada to consider introducing a requirement that clearly articulates the obligation for firms and advisers to put their clients' best interests first. This will not only offer better protection to investors, but also ultimately increase investor trust and confidence in the Canadian capital markets.

 
 
FAIR Canada supports the IIROC initiative to issue requirements and best practices for the distribution of non arm's-length investment products. But it recommends that IIROC go further than what is provided for in the draft Guidance Note, including the following:
  1. Clarify how members are to put the client's best interests first.
  2. Provide more definitive guidance about what constitutes acceptable disclosure to the client.
  3. Redraft the draft guidance note to clarify which provisions are mandatory, and any mandatory provisions should be set out in an IIROC rule.
  4. IIROC rules should require that IIROC Dealer Members have policies and procedures in place to: (i) identify non arm's-length products; (ii) perform adequate due diligence on the products; (iii) assess conflicts of interest and suitability for each client to whom the products are sold; and (iv) provide IIROC with advance notice of certain product distributions.
 
SEC Commissioner Calls for a Statutory Fiduciary Standard
U.S. Securities and Exchange Commissioner Luis Aguilar, in a recent speech, called for a statutory fiduciary standard to be introduced for all providers of investment advice. Aguilar said "The events of the last two years have underscored an age old truth that financial products and technologies will continually change, but the potential for deception and conflicts endure ... While the scope of service may vary between clients, the standards of loyalty and care in providing that service should not."
 
 
Goldman SachsGoldman Sachs Charges and the Fiduciary Standard
On April 16, 2010, the U.S. Securities and Exchange Commission filed a complaint against Goldman Sachs, alleging that Goldman had misled investors by selling toxic vehicles that Goldman devised and sold at the instigation of a hedge fund which proposed to sell short the investment.  Goldman Sachs Chairman and CEO, Lloyd Blankfein, recently pledged to clients that he wants Goldman to "be the leader in things like ethics, in putting clints first". 
 
 
Australia Plans to Introduce Commission Ban
The Australian government has announced plans to introduce UK-style reforms aimed at banning financial advisers from obtaining commissions from product providers. 
 
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