FAIR Canada Newsletter

November 2014

What Needs to be Said about What Not to Say

At long last, we're reaching implementation of the regulatory initiative known as CRM2 (shorthand for the second phase of the client relationship model). Once it kicks in fully in July 2016, investment firms will have to give clients clear and straightforward information about how their investments are performing and how much they're paying for the service their advisors provide. In a word, CRM2 is all about transparency.

Getting to this point hasn't been easy. Progress has been slowed by the investment industry's deep worry that CRM2 may cause seismic upheaval when investors are shown the full cost of products they've been sold and the impact of those costs on their investment returns. Nevertheless, most thought leaders in the industry seem to have come around to the view that greater transparency is necessary, or at the very least inevitable.

Despite this progress, it's troubling to read that a prominent mutual fund company has begun counselling advisors to use euphemisms and overt message management when talking to clients about fees. According to a news article published online by Investment Executive on Oct. 22 entitled What not to say when discussing fees, the firm in question recommends, among other strategies, that advisors avoid using the words "fees" and "commissions" altogether and instead substitute "costs" or "standard charges" during client conversations. This is disturbing on several levels.

This story originally appeared as an Inside Track op-ed in the online version of Investment Executive. To read the rest of the article on our website, click here.

Does Disclosure Work?

FAIR Canada and Rotman School of Management's Capital Markets Institute hosted a successful conference on October 28, 2014 entitled "Does Disclosure Work?".

Following a keynote address from Susan Wolburgh Jenah, subject-matter experts Christopher Nicholls , Dilip Soman, and Sunita Sah each presented formally on their area of expertise to set the context for the day's discussion. Christopher Nicholls provided background regarding disclosure and its importance in securities regulation; Dilip Soman informed the audience about behavioural science and consumer decision-making; and Sunita Sah presented research regarding the effects of disclosing conflicts of interest.

Please click here to read more about the conference.

Review of Proficiency Framework Warranted

FAIR Canada's comments on IIROC's recent proficiency assurance consultation focus on the need to reevaluate the current proficiency framework. As we point out in our submission, the current proficiency framework was designed, many decades ago, around the sales process, for salespeople. The educational and professional standards for registrants are structured around the particular products representatives are permitted to sell, not the overall quality of advice provided to retail investors. The standards must be raised to align with the image of professionalism that registrants and their firms portray, as well as with investor expectations.

To read the rest of the article, click here.

Comments on IIROC's Phase 2 of the Client Relationship Model

FAIR Canada provided comments to the Investment Industry Regulatory Organization of Canada in favour of the proposed amendment contained in the IIROC 2015 and 2016 CRM2 Amendments which will result in investors being provided with more complete information than in the previous IIROC proposed amendments. If the dealer or adviser is the dealer or adviser of record for the client, then information must be provided regarding a security issued by a scholarship plan, a mutual fund or an investment fund that is a labour-sponsored investment fund corporation or labour-sponsored venture capital corporation, even if no ongoing compensation is received by the dealer member. This is consistent with the CSA CRM2 Amendments.

Please click here to read more.

Asset Backed Securities Must Retain Risk

FAIR Canada has urged the Canadian Securities Administrators to require retention of risk in securitization as well as stressed the need for transparency and detailed, complete and accurate information about asset-backed securities. It is essential that investors have the information they require to assess the level of risk. In the United States, federal regulatory agencies responsible for implementing regulations under The Dodd-Frank Wall Street Reform and Consumer Protection Act have finalized rules for risk retention requirements in asset-backed securities transactions. FAIR Canada recommends that the CSA do the same.

FAIR Canada is hiring - Lawyer and Policy Analyst

The Canadian Foundation for the Advancement of Investor Rights (FAIR Canada) is a non-profit organization and a registered educational charity that acts as a national voice for investor protection in securities regulation. We are independent and aim at all times to be a principled, constructive and trusted thought leader on regulatory policy issues being considered in Canada's financial services sector. For more information about FAIR Canada, please visit our website at www.faircanada.ca.

We currently have an opening in Toronto for a lawyer to fill a multi-faceted role, acting as our Legal Counsel and Corporate Secretary and also as a policy analyst. The successful candidate will be an integral part of a three-lawyer team working with our board of directors in a collegial and stimulating environment.

Applicants should have a strong understanding of securities regulation with 2 to 4 years of experience in this field. The position also requires exceptional research and analytical skills, strong organizational abilities, and excellent oral and written presentation skills. Familiarity with charity law and the Canada Not-For-Profit Corporations Act would be an asset. Fluency in French would be a significant asset.

Interested qualified candidates should email their resumes along with a covering letter and reference contacts to FAIR Canada's executive director Neil Gross at neil.gross@faircanada.ca by January 5th, 2015.

We thank all applicants for their expression of interest; however, only those candidates selected for an interview will be contacted.

FAIR Canada in the News

FAIR Canada works to bring important investor issues to the attention of media, the Canadian investing public, regulators, government, and industry participants. FAIR Canada news coverage this month included:

Maternity ward data sold to RESP dealers: OSC (Financial Post)
New scrutiny coming for mutual fund fees (The Bottom Line)
What do we know? (Winnipeg Free Press)
Trailing fees: What your mutual fund advisor now has to tell you (BNN)

For more media coverage, please click here.

FAIR Canada is a national, charitable organization dedicated to putting investors first.

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