Regulators Release Results of Mystery Shopping Research on Advisory Practices and the Investor Experience

TORONTO, Sept. 17, 2015 /CNW/ - The Ontario Securities Commission (OSC), Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association of Canada (MFDA) today released a joint report, Mystery Shopping for Investment Advice. The report describes the results of a mystery shop of advisors across Ontario between July and November 2014.

Conducted as a joint initiative by the OSC, IIROC and MFDA, this research is the first of its kind undertaken by Canadian securities regulators. The purpose of the mystery shop was to assess retail investors' experiences and to evaluate the investment advice process.

A total of 105 shops were completed throughout Ontario across four investment platforms, including investment dealers, mutual fund dealers, exempt market dealers and portfolio managers. Of these, 88 shops had sufficient data to allow for an assessment of the shoppers' experiences against a set of benchmarks for best practice, compliant and non-compliant advice.

There were no examples of serious misconduct found that necessitated regulatory action.

The research revealed a number of findings in terms of what investors experienced in initial meetings with advisors.  Investors heard about investment products that advisors could sell in 78% of shops and were asked about their investment objectives in 89% of shops.  Investors were less likely to hear about product fees (56%), be told about the risk / return relationship (52%), be asked for thorough know your client (KYC) information (32%) or be told about advisor compensation (25%).  As the process varied greatly, regulators were able to conclude that investors would have difficulty comparison shopping, understanding the variety of business titles or knowing whether they received suitable advice.  

Recommendations were made in 24 of the 88 shops.  Suitable product recommendations (appropriate given the investors' investment objectives, risk tolerance and financial circumstances) were made in 86% of shops and unsuitable recommendations in 14%.  For these 24 shops, thorough KYC information was collected in 79% of shops and an appropriate discussion of product fees in 71%.  Sixty-three per cent of shops met or exceeded all regulatory expectations. 

The findings have been considered by all three regulatory organizations.  In response, the OSC, IIROC and MFDA have set out detailed action plans to build on their ongoing efforts.  These next steps will focus on an enhancement of advisory practices, setting out clear expectations and using the findings to inform policy making, with a view to improving the overall experience investors have when seeking investment advice.  Investment industry firms and advisors should review and respond to the findings to ensure investors receive advice that is appropriate and leads to a better investor experiences.

The related Notices (OSC Staff Notice 31-715, IIROC Notice 15-0210, MFDA Bulletin 0658-C) also include critical information about proficiency and registration categories of the platforms shopped (Appendix A) and evaluation benchmarks (Appendix E) against which the mystery shop results were assessed.

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The OSC is the regulatory body responsible for overseeing Ontario's capital markets. The OSC administers and enforces Ontario's securities and commodity futures laws. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets.

IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada.  IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while maintaining efficient and competitive capital markets.

The MFDA is the self-regulatory organization for Canadian mutual fund dealers, regulating the operations, standards of practice and business conduct of its 103 Members and their over 80,000 Approved Persons with a mandate to protect investors and the public interest.

SOURCE Ontario Securities Commission

For further information: ONTARIO SECURITIES COMMISSION: For Media Inquiries: Kristen Rose, Senior Public Affairs Specialist, 416-593-2336, [email protected], www.osc.gov.on.ca; For Investor Inquiries: OSC Contact Centre, 416-593-8314, 1-877-785-1555 (Toll Free); INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA: For Media Inquiries: Paul Howard, Director Communications & Public Affairs, 416-646-7279, [email protected], www.iiroc.ca; For Investor Inquiries: IIROC Complaints and Inquiries Centre, 1-877-442-4322 (Toll Free); MUTUAL FUND DEALERS ASSOCIATION OF CANADA: For Media Inquiries: Ken Woodard, Director, Communications & Membership Services, 416-943-4602, [email protected], www.mfda.ca; For Investor Inquiries: MFDA Inquiries Centre, 1-888-466-6332 (Toll Free)