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The regs, they are a-changin’

Stay informed so you can better manage the impact of new regulations on your business.

The regulators were active in 2018, proposing amendments designed to enhance your clients’ relationship with you, eliminate deferred sales charges (DSCs) and trailing commissions, and ensure the transparency of investment fund costs. In addition, the Ontario government has been exploring ways to regulate the use of the term “financial planner.”

Each of these changes may have an effect on your practice, which is why it’s so important to fully understand them. Here’s a summary of what’s in flux, along with Manulife’s perspective on each issue.

Building better client relationships

Several reforms proposed for National Instrument 31-103 focus on improving the service clients receive and, therefore, their relationship with their advisor. They include measures that, if implemented, will:

  • Increase advisor training, with registered firms required to educate registered individuals in areas such as the features of securities, legislation, conflicts of interest, know your client (KYC), know your product (KYP) and suitability
  • Expand KYC, with representatives required to collect more specific and comprehensive information about a client’s personal circumstances, needs and objectives, risk profile and time horizon
  • Expand KYP, with representatives required to understand essential security features such as initial and ongoing costs, the impact of those costs and how each security compares with similar securities available in the market
  • Emphasize putting clients’ interests first, with representatives required to make this a new core requirement when determining suitability and to explicitly consider the potential and actual impact of costs on client returns
  • Require better management of conflicts of interest, with dealers and representatives required to either address or avoid any that exist or are reasonably foreseeable, including any that arise from the payment of embedded commissions
  • Prohibit referral fees, in the absence of certain formality, record-keeping and disclosure requirements
  • Eliminate misleading or deceptive communication, as well as banning the use of titles based on sales and some designations and corporate officer titles when the individual is not a duly appointed corporate officer
  • Require firms to share information that potential clients would consider important in deciding whether or not to become a client, including a general description of accounts, products and services, charges and other costs, and any third-party compensation associated with the firm’s accounts, products and services
  • Manulife has expressed its concerns about some of these proposed amendments to the Canadian Securities Administrators. In our commentary, for example, we highlighted the added value of referral arrangements and explained that limiting referral fees to non-registrants could have the unintended effect of reducing investor choice and creating an inferior investor experience.

    Addressing what you can charge and what you must disclose

    Proposed amendments to National Instrument 81-105 will:

  • Eliminate DSCs as a payment option, despite the Investment Funds Institute of Canada (IFIC) view that this choice is appropriate where the inherent conflict of up-front sales commissions can be mitigated through disclosure, supervision and compliance reviews
  • Prohibit trailing commissions where participating dealers do not make a suitability determination or offer investment advice, although the IFIC view is that dealers should be prohibited from receiving payment for advice they do not provide, rather than fund managers prohibited from making trailing payments
  • Cost transparency is also part of the Client Relationship Model Stage 2 (CRM 2), a securities-driven initiative that requires dealers to disclose the dollar amount a client pays in advisor and dealer service fees every year. The insurance industry is expected to adopt full-cost-disclosure requirements by 2021 – something Manulife believes is essential so the mutual fund and insurance industries are in step. Moving simultaneously and consistently will reduce client confusion and maintain a level playing field across industries and product lines.

    Regulating the use of “financial planner”

    In Ontario, the government is considering three ways to help consumers navigate an environment in which titles often don’t correlate to qualifications or expertise:

  • Restrict the use of “financial planner,” allowing only individuals who hold a recognized financial planning credential to describe themselves that way
  • Prohibit the use of similar titles, to reduce client confusion
  • Create a central database of financial planners, to help clients find qualified advisors
  • Manulife supports the development of a regulatory framework to restrict and regulate the use of the “financial planner” title, and recommends that the Ontario Ministry of Finance leverage the existing regulatory regime and focus on addressing gaps presented by non-licensed, stand-alone advisors.

    We’re here to support you

    As you and your practice adapt to the shifting regulatory environment, we at Manulife are here to provide information and guidance. Our responses to proposed amendments always consider the impact on advisors and their clients, and we aim to keep you in the loop as changes are proposed, debated and implemented. That way, you’re in the best position to apply new rules with a minimum of disruption to your practice and client relationships. For more information about these specific changes, visit https://www.osc.gov.on.ca/.



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