TORONTO, Nov. 11, 2013 /CNW/ - A legal analysis of current and
contemplated obligations of financial advisors to act in their clients'
best interests has concluded that Canada's regulatory system is
thorough, progressive and in many cases superior to those of the United
States, the United Kingdom and Australia.
The 57-page report was prepared by Torys LLP, one of Canada's most
respected business law firms, at the request of the Investment Funds
Institute of Canada (IFIC) and the Investment Industry Association of
Canada (IIAC) to address and clarify the following statements included
in Canadian Securities Administrators Consultation Paper 33-403: The Standard Of Conduct For Advisers And Dealers: Exploring The
Appropriateness Of Introducing A Statutory Best Interest Duty When
Advice Is Provided To Retail Clients:
"In this respect, the U.K. and E.U. already impose a qualified best
interest standard on their advisors, Australia has passed legislation
making such a standard mandatory by July 1, 2013, and in the U.S.,
staff of the U.S. Securities and Exchange Commission (SEC) has
recommended such a uniform standard be introduced for broker-dealers
and investment advisers although both a detailed SEC cost-benefit
analysis and an SEC draft rule have yet to be completed."
"The terms 'fiduciary' and 'best interest' are over-used, casually and
interchangeably, to describe a wide range of possible and unclear
obligations," commented the paper's author, Torys Partner Laura Paglia.
"When we looked at the content of the obligations of investment
advisors in the U.S., the U.K. and Australia, we found that none of
these jurisdictions have, or are considering, more onerous requirements
than those already in place in Canada," Paglia added.
The U.S. Securities and Exchange Commission (SEC) has been exploring the
possibility of a "uniform fiduciary standard" for several years;
however, it has not yet made any recommendation. The Torys paper
concludes that the U.S. is either debating or clarifying concepts that
have been accepted and developed by Canada's legal and regulatory
The SEC Request for Information defines a fiduciary standard to simply
include a duty of loyalty and care.
A duty of care is comprised of know your product and suitability
obligations along with fair and reasonable compensation.
A duty of loyalty requires disclosure of the aspects of the retail
client relationship and material conflicts of interests.
In addition to Canadian common law, IIROC and MFDA requirements in
Canada incorporate and detail duties of loyalty and care.
The Torys paper found that the U.K. does not impose a statutory "best
interest" duty on investment advisors, and, unlike Canada, there is
little common law specific to investment advisors. "Their regulatory
rules of conduct which require that financial advisors act 'honestly,
fairly and professionally in accordance with the best interest of their
client' are consistent with the crux or content of duties that apply to
advisors in Canada through our existing regulatory system," Paglia
A recent (October 22, 2013) discussion paper published by the U.K. Law
Commission focuses on pension schemes, but considers various market
participants with some reference to investment advisors. The U.K.
Consultation Paper formed the view that the law of fiduciaries should
not be reformed by statute due to difficulties in defining fiduciary
duties, which difficulties would multiply with statutory reform and
result in new uncertainties and possible unintended consequences.
Various corporate collapses, along with a government mandated compulsory
superannuation program caused Australia to introduce a statutory best
interest standard in 2012. The statute did not provide clear guidance
as to the meaning of best interest - a task that has fallen on the
Australian Securities and Investment Commission (ASIC). The analysis by
Torys reports that the subsequent guidance issued by ASIC is neither
superior to, nor more onerous than those of Canada's SROs, and that the
incoming government is expected to further narrow the scope of the
"Our conclusion, after reviewing the content and source of the
obligations of investment advisors in each of the jurisdictions the CSA
has elected to consider and benchmarking them against Canada, is that
the applicable rules, guidances and notices of the IIROC and the MFDA
fully inform investment advisors' professional standards in manners
consistent with, if not superior to, approaches in these other
jurisdictions," said Paglia. "In looking to other jurisdictions for
best practices, it is vital that the CSA fully appreciate the
underlying substance and context informing the concepts that are being
considered and analyse these jurisdictions judiciously against Canada's
regulatory system as a whole," Paglia added.
To review the analysis by Torys, click here.
SOURCE: The Investment Funds Institute of Canada
For further information:
Torys Media Contact:
Laura Paglia, Partner email@example.com, 416-865-8192
IFIC Media Contact:
Sara Clodman, Senior Manager, Public Affairs: firstname.lastname@example.org, 416-309-2317
IIAC Media Contact:
Michael Gotzamanis, Manager, Communications, email@example.com, 416-687-5475, mobile 416-320-6920