October 24, 2019 – Streamlining the regulation of financial advice could create a more finely tailored, fit-for-purpose oversight regime, says a new report from the C.D. Howe Institute.
In “Ripe for Reform: Modernizing the Regulation of Financial Advice,” author Joanne De Laurentiis argues merging and rationalizing financial advice regulators would eliminate rule overlap, remove operational costs for dealers and bring greater efficiency to the regulatory oversight process.
Over the past 25 years, Canada’s investment advisory industry evolved and expanded to meet the needs of a more demanding and active investing public. A decrease in the number of workplace retirement savings plans and Canadians becoming more comfortable with risk contributed to the increased demand for the services of investment advisers.
It is estimated that 42 percent of Canadians rely on a financial adviser for investment decisions, and the need for financial advice increases and evolves as individuals progress through life. To meet the growing demand for advice and serve a broader range of customers efficiently, many traditional investment dealers consolidated, merged with larger financial institutions, or restructured into single, multi-disciplinary firms.
“The financial advice industry changed at a rapid pace, but, despite regulators acknowledging industry calls for restructuring, they have not acted on them,” says De Laurentiis. “New technology and a broad consumer base hungry for quality financial services should be the catalyst for regulation to catch up.”
Across the industry’s three Self Regulatory Organizations (SRO), which include the Mutual Fund Dealers Association (MFDA), the Investment Industry Regulatory Organization of Canada (IIROC) and Quebec’s Chambre de la sécurité financière, regulatory overlaps and redundancies exist. De Laurentiis argues a single regulator will have a significant impact on consumers who will benefit from dealers and advisers being held to consistent standards, and aid advisers in developing as professionals and meeting their clients’ needs.
“While many of the regulatory standards are similar, they are not necessarily applied consistently by each regulator,” says De Laurentiis. “Dealers have argued that too many regulations doing the same function points to an inefficient regulatory framework that is more fragmented than it needs to be with plenty of overlaps, duplications, contradictions and gaps.”
A unique opportunity to tackle reform has emerged in Ontario, the largest market in the country, where the provincial government is directing its ministries and agencies to engage all stakeholders in a red-tape reduction and modernization exercise.
The report offers some key actions that would improve the efficiency and productivity of financial regulators:
- Collapse IIROC and MFDA into a single organization, creating a new agency;
- Identify shared or duplicate oversight functions between SROs and commissions and transfer them into the new agency; and
- Establish the reporting structure of the new agency to the provincial and territorial securities commissions, which will set its mandate and operating rules.
For more information contact: Joanne De Laurentiis, former President & CEO, Investment Funds Institute of Canada; or Nancy Schlömer, Communications Officer, C.D. Howe Institute, phone 416-865-1904 ext. 0247, email: email@example.com.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.