Regulatory reckoning: Dealing with a

(October 21, 2003) Imagine standing on the beach while a tidal wave comes in. That’s how some are describing this fall’s unprecedented number of proposed improvements to the country’s securities regulation system, including the Wise Persons’ Committee and Uniform Securities Legislation. In this special two-part feature, Advisor.ca takes a closer look at four of the various initiatives and gets some much-needed perspective from industry leaders.

“Regulation is overwhelming,” says IFB president David Barber.

“A lot is happening and the whole industry is percolating,” says Advocis president Steve Howard.

It’s also been frustrating for advisors, Howard notes, struggling to sort out what the various reform initiatives might mean for their business.

The simple answer is money, in the form of higher fees, says IFIC vice president John Murray. “Every change in current regulation — whether it’s good or bad in the long term — involves outlays of cash that dealers don’t have and the only place they can get it from is by passing costs on to their reps.”

There’s also the issue of paperwork. According to Howard, some advisors now spend up to 40% of their time dealing with compliance, at the expense of production.

Those are important concerns. But investor advocate and former Ontario Securities Commissioner Glorianne Stromberg says advisors who complain about fees and compliance may be missing the bigger picture.

“The reality is that it is in advisors’ interests to have a better regulated industry with better controls,” she says. “One of the major problems out there is the betrayal of trust. So anything that will help has to, in the long term, be beneficial for advisors who are serious about meeting the needs of their clients.”

Barber takes the opposite approach, arguing that he’s not hearing consumers complain about being ripped off by their advisors. “I don’t know where a lot of this stuff is coming from. If it’s not broken, why does it need to be fixed?” he asks.

Whether or not you agree reform is needed, it does appear to be on the way, and here’s what’s in the immediate future:

Uniform Securities Legislation: Spearheaded by the Canadian Securities Administrators, the USL project is an attempt to harmonize the various provincial regulatory rules, allowing for “one-stop shopping” for registrants and the delegation of decision-making powers from one regulator to another. In the works for a couple of years, a draft of the legislation is expected by the end of the year for final approval by the provinces in spring 2004. Supported by Quebec’s securities commission, a staunch opponent of a federally-run regulator, the CSA’s position as a “de facto” national regulator was strengthened in September with the creation of a permanent office in Montreal.

Murray: “In some case, the law may be totally changed, so [fund dealers] will have to figure out how it applies to their particular operations. That means legal costs and accounting fees. In the mutual fund world, the majority of dealers pass increases in operating costs directly down to individual advisors so they end up sharing the burden.”

Howard: “They want to get this passport done and after that they’ll try to improve on the differences between the regulators across the country. It’s sort of a minimalist approach.”

Stromberg: “Uniformity of regulation is a first step to getting regulation operating on a national basis. It’s a key proposal, but I don’t think it’s a substitute for single regulator or a passport system. It will help get everybody singing from the same song sheet. It concerns me that people think uniform legislation is enough. We’ve done that before, but the provinces started to tinker with it, so it didn’t take long for uniformity to get out of synch. The U.S. has been working on a uniform act for decades and they’re still not there. Pursuing uniformity sounds grand but in the end, it’s not going to achieve the good objectives those people want. We have to take that next step to a single regulator approach.”

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CSA restructures, sets up Montreal office Regulatory competition counterweight to securities industry concentration, Quebec study argues National securities regulator would save $40 million a year, study says Ontario regulator proposes three distinct advisor-client relationship models

Wise Persons’ Committee: Chaired by Michael Phelps, the federally-appointed committee has a broad mandate to study the country’s securities regulation system and recommend changes. The seven-member committee has spent the year sifting through nearly 100 submissions (many favouring the creation of some kind of national regulatory system) and holding cross-Canada consultations. A report is to be delivered to federal Finance Minister John Manley by the end of November.

Stromberg: “I was quite encouraged by the appointment of the WPC. I thought here at last we’ve got the politicians involved and maybe they can come up with a pragmatic solution. But I really think we need to give more thought into how we bring all levels of government together in a private agreement to create a single body that would operate throughout Canada and be responsible for financial services regulation. It’s not an impossible task, it’s only impossible because people want it to be. If people want a solution, it can be crafted very easily. So I wonder whether there is really a will to solve the issue.”

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In part two of our regulatory feature — to be posted Oct. 22 — we’ll take a look at two other reform projects: the provincial finance ministers’ steering committee and Ontario’s controversial Fair Dealing Model.

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Is regulation overwhelming? What difference, if any, will the proposed reforms mean to your business? Share your thoughts in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(10/21/03)

Doug Watt