CSA proposals could make advice too expensive for small investors

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The Investment Funds Institute of Canada (IFIC) says suitability requirements proposed by Canada's securities regulators may make it uneconomical for advisors to serve people who have less than $50,000 to invest.


In consultation paper 33-404, Canadian Securities Administrators (CSA) contemplate increasing the obligations advisors and investment dealers owe their clients. Among other things, the CSA may introduce more comprehensive suitability requirements. The regulators ask, for example, if advisors could perform a suitability analysis on a client's portfolio at least once every 12 months. Advisors may also need to determine if it would be better for a client to take other steps, such as paying off high interest debt or directing cash into a savings account, rather than purchase investments.


IFIC submitted its comments on the paper yesterday, and warn that requiring advisors to collect this sort of information on all of their clients could end up driving them out the lower and middle-income markets.


"The proposed suitability requirements may create the expectation that firms will provide financial planning services to all clients regardless of their actual needs or size of account. These provisions significantly expand the information to be collected," warns IFIC. "This level of detail is not required for the assessment of financial needs of most clients – keeping in mind that 74% of Canadians with investable assets have under $50,000 to invest."


The mutual fund association argues that this one-size-fits-all approach would increase the costs of setting up and managing accounts, making it too expensive to do business with smaller clients.


This is just one area of concern IFIC raises in its submission to the CSA. The full document is available on the IFIC web site.


As published in The Insurance & Investment Journal by Andrew Rickard Sept. 21, 2016 09:43 a.m.


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