Anti-investor Reforms at the CSA

The Canadian Securities Administrators (CSA), an umbrella group of representatives from securities regulatory agencies across Canada, has announced that it will eliminate deferred sales charges but that it will not ban embedded commissions. The CSA is also not moving ahead with a statutory best interests duty. This duty, which would require investment advisers to act honestly and in good faith while providing advice in the best interests of their clients at all times, is necessary to manage the expectations gap that currently characterizes the investment relationship.

The move toward a statutory best interests duty previously had gathered steam, at least in Ontario and New Brunswick. Now investors will continue to participate in the capital markets without an additional important protection. Ontario had been staunchly in favour of a best interest duty, or at least it seemed that way. An expert panel in the Province of Ontario had recommended the implementation of such a duty in 2016.

The upshot is that investors will continue to be in the dark about embedded commissions and will not have enshrined in legislation a best interests requirement. The  CSA reported in early 2017 on its consultation about embedded commissions. Investors are often unaware of these commissions, which are paid to investment dealers and their representatives. The CSA concluded that investors are not making their investment decisions on the basis of transparent disclosure about fees that they themselves pay.

Furthermore, embedded commissions raise conflict of interest questions, since they misalign the incentives of investment fund managers, dealers and representatives on the one hand and of the investors they serve on the other. 

The previous important work of the CSA in terms of a best interests duty and in shining a light on hidden fees should have been carried forward not thwarted and shelved.  Again, we must ask, isn’t it the role of securities regulators to protect investors? This move by the CSA and its members is extremely disappointing. Who speaks for investors in this country?

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