IFB outlines problems with Registration Reform Project

Coming up with new regulations isn’t easy. Just ask the Independent Financial Brokers of Canada, which has more than a few issues with the Canadian Securities Administrators’ Registration Reform Project.

In the IFB’s quarterly newsletter, the association outlines its beefs with the proposal and says the project “comes wrapped in the guise of an attempt to harmonize, streamline and modernize securities registration.”

The first issue the IFB outlines in its summer newsletter deals with the proposed relationship disclosure document. The IFB says that form is a “one-size-fits-all [that] might work for a client who seeks a full-service managed account” but that it’s not suited for the investor who just wants to make a transaction or two.

“They’re trying to prescribe all the elements of the relationship,” says Suzanne Allemang, manager of regulatory affairs at the IFB. “The reality is that often the relationship evolves over time between advisor and client.”

What’s curious about the CSA’s comments on the relationship disclosure document is that, according to Allemang, the MFDA and IDA are still working on the form.

“They released the registration reform paper without really seeing the relationship disclosure document,” she says. “They’re drafting something that the industry hasn’t seen yet.”

Complicating matters is that the Joint Forum has developed a point-of-sale disclosure document for the insurance industry. Allemang’s worried that this form and the yet-to-be-seen document will overlap.

“From a client’s perspective, how is all this going to fit together?” she asks. “How much duplication is there going to be? It’s not clear at this point how these two documents are going to fit together or where conflicts or duplication might arise.”

Another one of the IFB’s concerns is with registration requirements. Today, advisors are forced to register based on trade triggers — you either make trades or don’t — but if new regulations pass, a business trigger would determine who has to register.

Allemang says switching to a business trigger means advisors who provide advice will be required to register, along with the agents who make trades. The IFB thinks this “will cast a much wider net of registrants.”

“A business trigger is a broader approach,” explains Allemang. “They’ll have to be careful about making sure that the situation is sufficiently defined so people know whether they need to get registered.”

What’s the problem with all advisors registering? “There’s a cost for independent advisors,” says Allemang. “And they might only see themselves as purely giving financial advice and send clients elsewhere to implement a trade.”

One of the IFB’s biggest problems is with the “recognition of incorporated salespeople.” The organization says that the MFDA technically doesn’t allow agents to be paid a commission through their personal corporations, but every so often, the SRO suspends that rule.

“Rather than do it on an exemption basis, why not just deal with it and allow it to happen?” says Allemang, who adds that every province handles the issue of commissions differently.

The IFB wants the CSA to change the rule. “It is time the CSA develops a means to resolve this issue so that mutual fund advisors, regardless of their province of residency, can manage their business affairs in the most effective and efficient manner possible,” says the organization in its newsletter.

Allemang says the Registration Reform Project makes no mention of this rule. “They haven’t dealt with it yet,” she says. “They indicated that they’re going to deal with it separately, but I’m not sure if they indicated a time frame on that.”

Still, the IFB is optimistic that these incorporation issues can be resolved. “They’re looking at it,” says Allemang. “I don’t know why they wouldn’t change it.”

It’s not all bad news from the IFB though. It commends the CSA’s desire to create a permanent registration process so advisors don’t have to register annually as they do now.

It’s also pleased that the CSA is recommending that advisors who transfer firms be automatically reinstated when they join a new company within 90 days. Right now, advisors need to apply to their respective regulatorsw when they switch firms, and they can’t practise until the regulator approves the move.

As for the IFB’s outstanding issues, Allemang is confident that they can get resolved. She says the IFB and the CSA, which did not respond to our interview request, have a positive relationship. But, she adds, the consultation process is a long one, and the IFB is not the only organization that has comments on the Registration Reform Project. “There are a lot of interested parties,” she says. “If you look at the number of submissions, there were a lot of them.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(08/14/07)

Bryan Borzykowski