April 2024

In this month's newsletter, we discuss the securities regulators’ proposal to strengthen the complaint process for investors and explore why some groups oppose it. We also highlight the challenges investors face when trying to understand different job titles financial service providers use, particularly the financial advisor title. Under What’s New, we feature the BC Securities Commission’s Guide to Understanding RRSPs. Dive deeper into these topics and more…

Why Are Some Groups Opposed to Binding Complaint Resolution for Investors?

In February, the comment period ended for the Canadian Securities Administrators’ (CSA) proposal for binding authority for the Ombudsman for Banking Services and Investments (OBSI). Their proposal intends to address severe shortcomings in the current framework, while retaining OBSI’s impartiality and flexibility in resolving legitimate complaints. Considering the importance of complaint-handling for millions of Canadian investors, a coalition of consumer advocacy organizations came together for the first time to deliver a unanimous comment letter supporting the proposal.

Some industry participants agree we need binding decisions to address a major flaw in the complaint-handling system. The evidence is clear that the current system cannot effectively deal with an investment firm that refuses to follow OBSI’s recommendations.

Such a firm can pressure its clients into low-ball settlements or simply walk away from the process, leaving their clients with nothing at the end of the day. Unfortunately, too many firms have engaged in one or both behaviours to the detriment of their clients and public confidence in the financial services industry. 

We must remind ourselves that the complaint system for investment dealers was conceived to be a different alternative to litigation. It was designed to be accessible to retail investors, faster and cheaper, and to promote public confidence.

We all lose, including investment firms, if the typical complaint handled by OBSI has to be resolved through costly litigation. That’s why OBSI was created more than 25 years ago at the suggestion of the banks, which preferred the arrangement of an industry ombudsman rather than a formal regulatory approach to resolving complaints. Everyone understood the need for it, appreciated its value, and applauded its unique ability to help resolve complaints more constructively.

Unfortunately, to stave off the CSA’s proposal, some industry groups are raising every imaginable (and sometimes unfounded) criticism they can muster. Those standing for smaller investment firms appear chiefly concerned about the ability of these firms to pay even relatively small dollar amounts, typically recommended as fair compensation by OBSI. To paraphrase one spokesperson, these firms will have trouble getting insurance if they have to pay what OBSI recommends to resolve a complaint against them. In their view, we should accept that some client complaints will go nowhere, not because they are invalid, but because the firm’s business model is too risky to insure. 

Thankfully, many more understand that no client should be asked to accept this outcome. They recognize the need to balance the respective rights of each side and to bring finality to a complaint in a manner both parties feel is fair and reasonable. Those standing for larger investment firms appear to take this perspective. Their main concern is not so much about OBSI's recommendations—it is about being treated unfairly by OBSI’s processes and decisions.

The CSA has spent considerable time and effort proposing a framework that balances the different interests and promotes workable

and effective complaint resolution in this country.

At its root, they appear uncomfortable with a proposal that aims to level the parties’ negotiating power. This is because they have traditionally been the beneficiaries of that imbalance. The possibility that their clients could enforce OBSI recommendations against them makes them very uncomfortable. To assure them they will be protected, they want the right to escalate OBSI decisions to a higher authority. This authority will presumably deliver the procedural justice OBSI may have denied them.

Parenthetically, some individuals appear unconcerned that their clients may not be able to afford the same access to that justice, or endure the years it could take an appeal to wind its way through the system.

It is not surprising that these firms are arguing that they need a right of appeal to protect themselves from OBSI. It would help put them back into their comfort zone in many ways. However, seeing them play the victim card after having routinely dismissed consumer concerns when the shoe was on the other foot is more surprising. It is also a bit disingenuous since the CSA’s proposal contemplates that either party can seek a judicial review of OBSI’s process and decision, should they feel it was unreasonable or unfair.

Consumer advocates firmly disagree with the suggestion the CSA’s proposal, without a right of appeal, is unfair to the firms. The CSA has spent considerable time and effort proposing a framework that balances the different interests and promotes workable and effective complaint resolution in this country. The industry commentators also seem to forget that OBSI is intended to be an alternative to the costly and inefficient judicial system we have in Canada. By demanding a right of appeal, they seem to want their cake and eat it too.

If you want to support the CSA’s proposal, don’t hesitate to get in touch with your local regulator, or member of the provincial government to share your views. You can find contact information for each provincial securities regulator here. To contact a local member of your provincial legislature, search the following in your web browser: “members of provincial legislature of [enter your province]”.

Read our coalition’s joint letter to learn more about the CSA’s proposal. To learn more about making a complaint today, read Getting Your Money Back: An Investor’s Guide to Navigating Canada’s Complaint System.

Don’t Be Fooled by the “Advisor” Job Title

Understanding financial service providers’ titles can be challenging and daunting. This is partly because many have job titles to impress you instead of clarifying what they do. It was such a problem that securities regulators now prohibit the use of misleading titles by investment advisors and others who give investment-related advice to the public.

Unfortunately, the problem worsened when some governments created a new framework outside of Quebec that allows individuals with vastly different education, skills, and experience to use one of two protected titles: financial planner or financial advisor. These individuals only need to meet some minimum, but very different, requirements before using them. And many are subject to very different levels of regulations, oversight, and disciplinary programs. And they all seem to get paid differently. Some get paid for their advice, whereas others get paid based on the products you buy from them. Despite all these significant differences, they are all allowed to use, for example, the financial advisor title.

To help the public navigate and make sense of this patchwork maze of titles, Ontario’s Financial Services Regulatory Authority (FSRA) had to create a new database called Check Credentials Tool. It is intended to help you find which of the 14 different credentials (and counting) your financial planner or financial advisor may have obtained from one of five credentialing bodies (and counting). 

If you’re a retail investor working with an advisor, you must understand who you are working with. …Ask them about their qualifications, who regulates them, and what they are licensed to sell or recommend to you.

After typing in your financial planner or advisor’s name, if their name appears in FSRA’s database, it will confirm that they can use the protected title. Beyond that, the database is of limited use. For example, it does not clarify whether a financial advisor is only licensed to sell mutual funds, or whether they do provide holistic financial advice. If you want better information on your financial planner or advisor’s compliance history or qualifications, you must check out other databases on their credentialing body’s websites.

Also adding to the confusion, the database presents information differently for various individuals. For example, some credential holders are labelled “Active” whereas others are considered “In Good Standing.” Sometimes the information was entered incorrectly, and you may need to enter different search terms with different spellings. 

Basically, it’s a confusing maze that requires you to navigate multiple databases. And even then, you’ll need to know which regulatory system applies to your financial service provider to understand how well you'll be protected, or which products they are licensed to recommend.

After all, even though insurance agents, mutual fund salespersons and portfolio managers are all subject to very different regulatory frameworks, they are all permitted to use the financial advisor title in Ontario.  

If you’re a retail investor working with an advisor, you must understand who you are working with. Please do not rely on their title. Ask them about their qualifications, who regulates them, and what they are licensed to sell or recommend to you. Also, ask them whether they must put your interests first and resolve conflicts in your best interest. Many advisors lack such obligations and may, for instance, recommend purchasing products that put more money in their pocket than yours.

Based on their response, consider whether they are right for you and will give you the advice you need or want. How to invest your hard-earned savings is one of the more important decisions you’ll have to make. If you seek assistance from someone else, ensure you’re getting good advice from the right individual with the right qualifications. 

What’s New

Tax Season Update: BC’s Guide to RRSPs

Are you looking to demystify Registered Retirement Savings Plans and make informed investment decisions? Check out the BC Securities Commission’s comprehensive guide to understanding RRSPs. This helpful resource breaks down the complexities of RRSPs in a clear and accessible manner, helping investors confidently navigate tax-efficient savings strategies and retirement planning. Make the most of the tax season this year. Read the guide!

How to Make a Complaint With CIRO

The Canadian Investment Regulatory Organization (CIRO) recently released a new How to Make a Complaint brochure, providing valuable guidance on navigating the complaint process effectively.

You can read more about how to complain against a CIRO member, and check out their brochure here.

Connect With FAIR on Social Media!

At FAIR Canada, we understand the importance of investor protection and transparency. That’s why we’re running a series on #MakingAComplaint on our social media platforms.

For insightful content and to stay informed about your rights as an investor, follow us on LinkedIn or X (formerly Twitter).

Throughout the year, FAIR Canada submits many comment letters on various important policy and regulatory matters that have an impact on investors. Read more about our investor advocacy work.

We’d Love to Hear From You!

Do you have feedback on our newsletter or suggestions for topics you’d like us to write about? Your input is valuable and will help us improve our newsletter content for loyal subscribers like you. Please email us at info@faircanada.ca with your comments and/or suggestions.

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To learn more about our advocacy for investors, visit FAIRCanada.ca