With the comment period now closed for the MFDA’s proposed amendments to its client communication and client reporting rules, organizations are starting to speak out about the changes, including Advocis, which is especially upset with the SRO.
The group, which represents Canada’s advisors, says the MFDA failed to talk to advisors before publishing these proposed changes, and that’s meant new, more burdensome rules that Advocis’s members will need to follow.
“We have to react to the proposed rule changes, as opposed to being part of the process,” says Peter Tzanetakis, Advocis’s senior director of regulatory affairs. “We were not involved early on in discussions around what problems consumers are having and how to appropriately address them.”
He points out that the MFDA’s members are dealers and not necessarily the advisors that the proposed rules will regulate, so Advocis should have been consulted on those rules that affect advisors.
While there are several things the organization says the MFDA got wrong, what has Advocis up in arms is that under the proposed amendments, advisors will have to get their dealer’s approval before they can talk to a client about the rate of return on a portfolio.
Tzanetakis is concerned that this rule really means that any communication between an advisor and client will have to be approved by the dealer. “We don’t have an issue with rate of return being established by the dealer, and that being communicated to the client,” he explains. “We do have an issue around any communication that must be pre-approved. This boils down to how advisors deal with their clients.”
Karen McGuinness, vice-president of compliance with the MFDA, says she can’t understand how Advocis interpreted the rule that way. She explains that the rule only prohibits advisors from saying how much a specific portfolio will return, and that’s it.
“If the advisor is just saying a GIC is expected to earn 1.5%, then that’s fine. If they say ‘I’m going to earn 6% in an account,’ then yes, that communication has to be discussed with the dealer.”
Any other client–advisor conversations don’t need dealer approval, and, she adds, the MFDA already explained this to Advocis. “They brought it up at a meeting, about how we were being overly onerous. Why ask why they are interpreting it that way? It’s not about product performance at all. We’re baffled.”
In response to Advocis’s complaint that advisors weren’t consulted on the rule changes, McGuinness says that’s not exactly the case. While the MFDA didn’t talk to advisors specifically, it held meetings with 14 industry representatives, including the IDA. “In the industry, there’s the concept the dealers don’t represent advisors’ interest,” she says. “That’s not true when it comes to regulation cases. The protection of investors is not a dealer- or advisor-centric issue.”
Moving forward, it’s unclear whether Advocis and the MFDA will talk about these issues in more detail. Tzanetakis says they’ve had some discussions with the MFDA and they hope to have more in the future, while McGuinness reveals that there won’t be any more discussions unless Advocis requests a meeting.
In the meantime the MFDA will look at all the comments it has received on the proposed changes — the comment period ended September 11 — and it will issue further interpretation if it’s required.
As for Advocis’ complaint about advisor-client communication, McGuinness says the other comment letters don’t mention it. “What Advocis is saying is not what we were intending,” she explains. “And I don’t think it’s a misunderstood concept, broadly.”
Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com
(09/16/08)