IAP continues focus on embedded commissions, best interest

A ban on embedded commissions is one of seven key initiatives this year for the OSC’s Investor Advisory Panel, as listed in its 2017 annual report.

The report summarizes the panel’s recommendations, activities, submissions, consultations and meetings during the calendar year, and provides a preview of the year ahead.

The panel says in the report that it will continue to call for a policy decision to have embedded commissions banned “at the earliest possible date.”

Further, it will continue to encourage the OSC and other regulators to implement a best interest standard “as soon as possible.” Specifically, the panel says it will focus on how best interest is defined and would be interpreted by the courts, “given that many advisors are apprehensive about potential legal liability.”

Read: How to make yourself invulnerable to liability

Also on the agenda are regulated, standardized definitions for “risk profile” and other associated KYC terms, as well as standardized assessment questionnaires and upgraded advisor proficiency for interpreting them.

Title reform is another focus for 2018.

All these initiatives continue from 2017, a year that also included strengthening the Ombudsman for Banking Services and Investments and oversight of self-regulatory organizations (SROs), and changes to the Cooperative Capital Markets Regulator (CCMR).

“We are left with many of the same questions for investor protection around best interest, embedded fees and the future of the evolving Canadian regulatory governance structure,” says the report. “This year, the panel again calls for the satisfactory and timely resolution of these issues.”

Read: Is regulatory uncertainty the new norm for Ontario?

The year in review

Specifically in 2017, the panel raised concerns that the CCMR, as currently proposed, doesn’t incorporate the OSC’s governance structures (namely the Investor Office and the Investor Advisory Panel) and only a few of its newer practices are designed to improve investor protection.

The report also criticizes the SROs for firms’ compensation practices, as revealed by compensation reviews.

Says the report: “CSA, IIROC and MFDA reviews paint a disturbing picture of widespread, indeed endemic, firm non-compliance with current conflict of interest rules. While firms are only required to manage conflicts rather than avoid them, the evidence is clear that they are not managing them at all—they have instead established compensation programs that actually create conflicts.”

Read: IIROC guidance for compensation conflicts expected in June

Last year panel members met with both IIROC and MFDA senior management to share concerns about gaps in investor protection.

About the panel

The panel comprises nine members appointed by the OSC chair following a public application process and on the advice of a selection committee consisting of two commissioners and a vice-chair. Panel members are appointed for terms of up to two years, with possible reappointment for one additional term.

For more details on the panel’s initiatives, read the full annual report.