reforms, followed through with coordinated and focused compliance and enforcement e;orts, and full realization of the CRM2
and Point of Sale initiatives, will achieve the best outcomes for
investors and advance the best interests of investors.
;e concerns of BCSC sta; are set out more fully in the next section.
Reasons certain CSA jurisdictions have concerns with the
potential regulatory best interest standard
Sta; of the BCSC, the AMF, the ASC, the MSC, and the NSSC
(the Jurisdictions with Concerns about a BIS) have concerns
with the proposed best interest standard, as follows:
;e proposed best interest standard may exacerbate the expectations gap between clients and registrants because of the existing
restricted registration categories and proprietary business models
permitted in Canada. Clients may expect that all registrants have
an unquali;ed duty to act in their best interests, not understanding that some con;icts would still be permitted.
;e current Canadian regulatory and business environment for
registrants allows for a wide range of business models and registration categories. ;ese range, on one end, from salespeople dedicated
to selling only proprietary products to, on the other end, portfolio
managers with ;duciary obligations over fully managed accounts.
;ere are a host of business models between these two extremes.
For those business models that are closer to the “salesperson” end
of the spectrum, it would be impossible to impose a regulatory
standard on these registrants that is truly a “best interest” standard.
;at has been borne out through the collective experience in other
jurisdictions around the world that have wrestled with ;duciary or
regulatory best interest standards. It is simply not possible to
require a salesperson of proprietary products only to act in a
manner that is truly in an investor’s best interest.
All of this is evident in the best interest standard proposed in this
Consultation Paper. ;e proposed standard will not prohibit
certain fundamental con;icts between registrants and their clients.
Registrants will continue to be able to:
• sell a limited range or type of investment products (these
registrants have the clear limitation that there may be nothing in
the limited range of products they o;er that is actually in the
investor’s “best interest” to buy);
• be owned by, or affiliated with, businesses that create the investment products they sell; and
• be compensated by investment product manufacturers rather
than the clients they are meant to serve.
;ese arrangements are not consistent with what a client would
expect from a standard that purportedly requires registrants to act
in their “best interest”.
;e Jurisdictions with Concerns about a BIS have identi;ed an
existing problem of clients misunderstanding the nature of their
relationship with their registrant and the corresponding overreliance this produces. If regulators impose a standard that is called a
best interest standard, but at the same time permit fundamental
con;icts to continue, they run the risk of contributing further to
this problem by leading clients to believe that they are getting
protections they are not.
;e proposed standard may therefore exacerbate the gap between
what clients expect and what is actually permitted.
;e proposed standard may also lead to client complacency. Trust
already plays a signi;cant role in the problem of overreliance. In
the recent National Smarter Investor Study commissioned by the
BCSC, 90% of respondents described their existing level of trust
in their investment representatives as strong or very strong.
Of those clients, whose representative did not discuss with them
how they were compensated, 74% of clients said they did not need
to know about their registrant’s compensation more often because
they trusted that it was fair and reasonable. 64% of clients who do
not always read their investment statements said they did not need
to read their statements very often because they trusted that their
representative was taking care of their money. While trust in a
representative is of course important and desirable, the proposed
best interest standard may cause investors to completely absolve
themselves of any responsibility for their investment decisions, on
the mistaken belief that registrants will be held to a higher standard
of care that will prohibit con;icts that are permitted today.
Research shows that engaged and informed investors lead to better
In the absence of more fundamental changes to restricted registration categories and con;icted business models, the Jurisdictions
with Concerns about a BIS think making it our priority to implement the proposed targeted reforms discussed in this Consultation
Paper and vigorously enforcing the current conduct standard to
“deal fairly, honestly and in good faith” will improve investor
protection and investor con;dence. ;e proposed targeted
reforms are geared to the realities of our current registrant categories and con;icted business models.
;e proposed best interest standard will create legal uncer-
tainty. It does not create a clear standard for registrants to
follow or for regulators to enforce.
Imposing a best interest standard that permits the existing
restricted business models and con;icted compensation structures
will create legal uncertainty. ;e proposed standard is expressly not
BEST INTEREST STANDARD - THE CASE AGAINST (Cont.)
BRIEFING NOTE FOR THE PCMA’S PRESENTATION AT QUEEN'S PARK ON MARCH 9, 2017