Fiduciary duty will raise costs: CSA roundtable

Unless an advisor has discretionary trading authority, a fiduciary standard doesn’t make sense. Most clients are in fact involved #CSA

Most advisors already are acting as de facto fiduciaries, there should be no cost changes. They’ll be doing the same things. #CSA

Read: Two ways to reduce compliance costs

Anything that disrupts the existing relationships between advisors and their clients is not in the best interests of investors. #CSA

The word Fiduciary has specific meaning in law, so that’s where it will change relationships and add costs.

Acting in someone’s best interests doesn’t mean the same thing in court as saying you’re a fiduciary. So be careful of language. #CSA

Read: Compliance costs cut into client services

Calling it “fiduciary” will also require creation of compliance and IT systems to ensure an investment is suitable. That will add costs. #CSA

This runs the risk of turning relationships with clients into a giant CYA and papering exercise in case you get sued. #CSA

And yet, the CFA imposes a fiduciary standard. But they have discretionary authority and there it is appropriate. #CSA

Read: Fiduciary versus suitability standard

Of the portfolio management firms in the last OSC sweep, only 2 had suitability issues. So will lawsuits actually increase? #CSA

But those portfolios operate within the context of a managed account mandate. If the mandate is fulfilled, you’re done. Advisors, by contrast, are not as mathematical. They talk to the clients all the time. It’s a different relationship. So the courts will ask advisors what questions they asked. What conversations led to a sale or decision to hold a security or fund. #CSA

Read: How to survive regulatory audits

Managed accounts have more limited product choices. These clients aren’t seeking access to the capital markets or risk. #CSA

If we put a fiduciary standard in place, courts will no longer be able to argue it and that will save time. It resolves a lack of certitute. #CSA

Don’t leave the definition to the clerks at OBSI or MFDA or IIROC or wherever. Make it at a higher level. #CSA

Read: MFDA for stronger supervisory structure

Costs already are increasing because each advisor has to hire three associates to do follow up with clients. And those clients react by saying, “why are you calling me about everything.” So the lines are blurring between advisors and PMs. #CSA

Trust equals fiduciary standard and advisors have to raise their standards and act accordingly. #CSA

Consumer advocates would take the view that any title with the word Advisor in it should carry a best interests standard. #CSA

Should titles reflect the advisor’s level of independence? Should it be scaled and reflect who only sells proprietary product? Many advisors have different models, so it’s important not to manage to the lowest common denominator. So base titles on competency. And the competency reflected in your title should determine what business you’re allowed to do. #CSA

Read: Advisors should earn their titles, says Advocis

If there is in fact value of advice, we need to be careful not to exclude a cheaper “sales” option that some clients may need. #CSA

CSA though raises some concerns about things like the EMD space where it’s harder to know what relationship looks like. #CSA

We don’t want the creation of bright line guidance to line the pockets of class action lawyers. So avoid having it be vague, because that opens the doors for entrepreneurial lawyers. #CSA

CRM can do a lot of what’s being discussed today, if it’s allowed to be fulfilled. OSC and CSA need to look at the origins of that. And they need to revisit the graduated licensing system that was proposed in the Fair Dealing Model. Don’t ignore what’s already been done. #CSA