Advisor incorporation rule delayed…again

Remember your school days, when you’d ask for an extension on a project because, gosh darnit, you just had too much on the go? If you were lucky enough to get an extension, you probably wouldn’t push your luck and ask for another as the new deadline approached.

Fast-forward to 2001. The newly minted MFDA crafted Rule 2.4.1 (Payment of Commissions to Non-Registered Entities), which dictated dealerships must pay commissions directly to mutual fund advisors, barring the advisor from receiving the money in a personal corporate account.

The rule was challenged by fund advisors and the MFDA called upon the provincial securities regulators to issue guidance. The regulators, busy with projects such as the Fair Dealing Model (as it was known at the time), put the issue on the back burner and gave themselves a rather generous deadline for addressing it.

That deadline was December 31, 2006.

The CSA is expected to present a draft paper on its Registration Reform Project before the end of this year, and there may be some reference to the rule within that document.

But the latest word on the issue is that the securities commissions of British Columbia, Saskatchewan, Ontario and Nova Scotia have extended their exemption — to December 31, 2008 — effectively suspending the rule’s enforcement for another two years.

“Advocis will continue to engage regulators across Canada on this important issue to develop a modern and consistent approach in all jurisdictions to allow all financial advisors to incorporate,” says Roger McMillan, chair of Advocis. “Inconsistent policies across Canada create an uneven playing field and disparity between how commissions are paid from the sale of different types of financial products.

“As regulators further contemplate the issue under the auspices of the Canadian Securities Administrators, Advocis is encouraging all provinces to recognize the suspension of the general rule and allow advisors to incorporate.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com