Bad News for Investors from the CSA


The Canadian Securities Administrators (CSA) announced yesterday that a majority of provinces and territories have abandoned the project of working on a best interest standard governing investment advisers and other financial intermediaries.

This is bad news for investors especially given the “expectations gap” that consumers experience: they incorrectly assume that advisers are obliged to provide advice that is in their best interests. As a result, they place inordinate reliance and trust on their advisers. In other words, their expectations are out of line with what the law provides. This point was highlighted by the Expert Committee to Consider Advisory and Financial Planning Policy Alternatives in Ontario as well as the CSA in Consultation Paper 33-404.

While the CSA is abandoning the collective effort, the Provinces of Ontario and New Brunswick indicated that they will continue working on the project to develop a best interest standard. In fact, Vice Chair Vingoe from the Ontario Securities Commission (OSC) indicated that the OSC is prepared to provide leadership in this area as it is committed to “fulfilling one of our greatest responsibilities as a regulator: delivering effective investor protection to the public we serve.”

The Nova Scotia Securities Commission and Financial Consumer Affairs Authority (Saskatchewan) have taken a middle ground approach, indicating that they may further consider a best interest standard if revisions are made “to add clarity and predictability.”

FAIR Canada, which has been very active in supporting the implementation of a best interest standard, posted a response to the CSA’s announcement on its website: FAIR Canada states:

“FAIR Canada is strongly of the view that conflicts must be addressed at a structural level. This means having compensation structures that avoid conflicts of interest, banning embedded commissions, and eliminating unrealistic sales targets, so that Canadian can save more while the financial industry will be able to earn deserved profits. Structural changes would also eliminate the need for conflicts disclosure, and correspondingly reduce much of the regulatory burden and cost associated with disclosure.”

Because of the expectations gap, most investors do not even know that they are not protected by a best interest standard. But it seems that the path to get there, at least outside of Ontario and New Brunswick, will be a long and perhaps non-existent one.