FAIR Canada
FAIR Canada Newsletter

November 2012

"Value of Advice" Claims "Completely Refutable"

Many financial industry participants, particularly the mutual fund industry and the groups that lobby for them (such as the Investment Funds Institute of Canada (IFIC)), love to tout "research" that demonstrates the value of advice.

 

Often, industry spins the results of studies, drawing very tenuous conclusions that, while unproven, fully support the products and services they sell. These tenuous conclusions, which assume cause and effect that are not necessarily demonstrated by the research, are then marketed to unsuspecting financial consumers as proof that if they receive "advice" from an "advisor", they will be better off financially.

 

The industry's latest gem is a research paper entitled "Econometric Models on the Value of Advice of a Financial Advisor", prepared by researchers at the Centre for Interuniversity Research and Analysis on Organizations (CIRANO). As noted in a recent Globe and Mail article by Preet Banerjee, problems arising from the limitations of the studies that have been conducted "are serious and could undermine almost all of the study's conclusions".

 

Please click here to read the rest of the story. 

 

Rob Carrick Calls Investors to Action

 

Rob Carrick of the Globe and Mail is calling on investors to demonstrate their support for a fiduciary standard for investment advice. In an article entitled "It's time we made financial advisers live up to that title" Rob provides a way for investors to indicate their "support to the idea of securities regulators requiring investment advisers to work in their clients' best interests...". You can do so, by "liking" the link to the above story on his Facebook page or by providing positive comments under the link to the story on his Facebook page (facebook.com/robcarrickfinance). As noted by Rob, "Every investor who supports the process helps prevent it from being sidelined." FAIR Canada encourages investors to provide their comments or "like" it if they support the initiative. 

 

Compensation Structure Important Element of Suitability

 

On November 16, 2012 FAIR Canada made a submission to the Investment Industry Regulatory Organization of Canada (IIROC) regarding compensation structures. In the submission we supported IIROC's emphasis on the appropriateness for the individual client of a given account's compensation structure. Specifically, FAIR Canada supports the emphasis that "one of the key factors that Dealer Members should consider is the account's compensation structure" as part of their suitability obligations. 

 

In the letter to IIROC, FAIR Canada also notes its concern that too much reliance is being placed on disclosure of conflicts of interest in adhering to Client Relationship Model ("CRM") requirements by industry participants as opposed to avoidance and control of conflicts of interest. FAIR Canada is alarmed about the weight being put on disclosure, particularly in light of much evidence (both within and outside the financial services context) about the ineffectiveness and unintended effects of disclosure of conflicts of interest. In our view, disclosure is not the ideal way to manage conflicts, particularly given the nature of advisor-client relationships and the demonstrated client expectation gap between suitability and best interests.

 

Please click here to read rest of the story.

 

TSX Listings Appeals Process 

 

FAIR Canada continues to be concerned about the absence of adequate safeguards to manage the inherent conflict of interest arising between the for-profit status of TMX Group and the TSX, and TSX and TSX-V's role as regulators of listed companies. There is a need to address the conflicts of interest in its listings regulation. Given this conflict, the appeal process and the Proposed Amendments suggested to that process are necessarily flawed and do not, in our view, meet an "international best practice" standard.

 

Please click here to read the rest of the article.

 

FAIR Canada Supports Majority Voting and Recommends Further Reforms  

 

FAIR Canada has provided comments on recent proposed amendments by the TSX which would require issuers listed on the TSX to have majority voting for uncontested director elections. FAIR Canada supports the proposed amendments.  Requiring majority voting policies will support good governance by providing a meaningful way for shareholders to hold directors accountable and remove underperforming or unqualified directors. FAIR Canada urges the TSX to go further and require disclosure to the public of voting results for each item on the proxy not just those cast "for" and "withheld" for individual directors (for example, results of votes for a resolution that did not pass). This will improve communications between shareholders and issuers and improve accountability to shareholders.  

 

Please click here to read the rest of the story.

 

In Support of a Best Interest Standard

 

Ken Kivenko of the Ontario Securities Commission's Investor Advisory Panel debates the merits of a best interest standard with Greg Pollack of Advocis on BNN.

 

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