The CSA developed a comprehensive set of rules, known as Client Focused Reforms (the reforms), which are based on the fundamental concept that clients’ interests come first in their dealings with firms and individuals that are registered to give investment advice and trade in securities. These changes mean better protection for retail investors and create a uniform standard for firms and advisers across the country.
The Client Focused Reforms will be introduced in two phases: the first is the implementation of the conflicts of interest rules, which took effect on June 30, 2021; the rest of the reforms, related to relationship disclosure information (RDI), will come into effect on December 31, 2021.
Addressing Conflicts of Interest
Under the new conflict of interest rules, registered firms and investment advisers are required to address material conflicts in your best interest, and put your interests first when recommending or choosing investments for you.
The new rules require firms and advisers to inform you about conflicts of interest, and how they are being addressed in your best interest, in a timely fashion and in an understandable language.
There are several situations when an investment adviser may have a conflict of interest. For example, your adviser may get paid a higher commission for selling you a certain type of investment, creating a situation where your adviser could lean towards recommending this product even though another lower-cost product may be better suited (or equally suited) to your situation or needs at the time. Under the new rules, your adviser must resolve this conflict in your best interest, taking into account different factors, including the suitability of a product for your situation.
If you are concerned about a conflict of interest, or you are not satisfied with the answer you are being given by your firm or adviser, contact your local securities regulator.
Relationship Disclosure
Beginning December 31, 2021, registrants are required to provide clients with more information about any limits on the products they offer, and the costs and risks associated with them.
- As part of the “know your product” (KYP) obligation, firms and investment advisers must take reasonable steps to understand the securities that they purchase, sell or recommend to you, including the impact of the initial and ongoing costs associated with acquiring and holding each security. This means they must make a suitability determination that puts your interests first.
- Firms and investment advisers must currently document crucial information about your personal and financial circumstances, known as “know your client” (KYC). As part of the new rules, they will now need to record your risk tolerance and your financial ability to withstand losses (risk capacity) and review the results with you. These changes are intended to result in more suitable investment portfolios. Advisers must take reasonable measures to update the KYC information regularly (once a year for managed accounts or as soon as they are aware of changes to your personal of financial situation).
- There will be enhanced information that firms and investment advisers must provide when you open accounts, so that you will have a better understanding of the scope of products and services that will be provided to you. The new requirements include providing information about potentially significant restrictions on what will be made available, investing costs (including compounding effects) and any limitations relating to the products and services offered (for example, if you will only be offered proprietary products). If so, your adviser should be able to demonstrate that the proprietary product they recommend is competitive and of quality compared to other products in the market to meet your needs.
- There will also be new provisions that expressly prohibit firms and investment advisers from holding themselves out in a way that could mislead you about such things as products or services, or their qualifications or proficiency. This includes prohibitions on sales-based titles and the use of titles such as “vice-president” by individual registrants who do not actually function as such under corporate law.