NEWS Summary

back to list

  Fair Deal for Small Investors

2002 April 5 - OSC is thinking small

The Globe and Mail in an editorial entitled "OSC is thinking small" on Friday, April 5, 2002, states "We applaud the Ontario Securities Commission's new "fair dealing model" proposals aimed at improving information and safeguards for small retail investors. They could form the basis for a much-needed revamping of the framework for dealer-client dealings and could reverse a disturbing erosion of protections for small investors."

The editors also write "The plan recommends, among other things, increased transparency of dealer compensation and conflicts of interest; ... and making firms more accountable for improper dealings by their employees. It also calls for a "fair dealing agreement"... which "would replace the current 'know your client' form, ... but "would go further than the know-your-client form in giving both parties vital information in understanding their obligations to one another. Further, it would require such disclosure from all service providers, whether they be traditional brokerage firms, discount brokers or RRSP providers. It's a rational, evenhanded treatment that will provide protection to all levels of investors."

SIPA says - Remarks entitled "A Fair Dealing Model" by David A. Brown, Chair, Ontario Securities Commission, to The Investment Funds Institute of Canada Kick-Off Breakfast create a feeling of optimism for small investors. His remarks follow initiatives by both the Manitoba Securities Commission and the British Columbia Securities Commission regarding industry de-regulation and improved protection for small investors.

Brown's remarks deal with the new reality of the investing world and calls for changes that could provide help for the small investor, particularly if they hold the firms responsible for the representatives actions and provide a power to orer restitution to small investors.

2002 April 3 - OSC Plans Changes to Broker Supervision

Richard Blackwell's article "OSC plans major changes to broker supervision" in the Globe and Mail on Wednesday, April 3, 2002, says "The Ontario Securities Commission plans dramatic changes to the way it supervises brokers and other investment professionals, so investors will know exactly how much their advisers earn from selling investment products. The changes will also see the elimination of the current "know-your-client" form filled out by brokers, and its replacement with a document that defines the customer's objectives more clearly."

Richard also writes that "OSC chairman David Brown outlined what he called a 'fair dealing model' in a speech in Toronto (to The Investment Funds Institute of Canada) yesterday, marking the opening of Investor Education Month. ... Mr. Brown said investing clients clearly need to know more about the costs of products they buy. While discount brokerage commissions are very clear, and mutual fund fees are becoming more transparent, full-service brokerage commissions and the spreads on debt securities are not well understood, he said. Data are often inadequate at the point of sale, he said, which is where 'the consumer needs the information to determine if the provider has any potential conflicts of interest.' "

Richard also writes "In addition to reforming the investor-client relationship, Mr. Brown said the advisory group is looking at enforcement issues. Of particular interest is the notion that brokerages lack sufficient incentive to keep a proper watch on top-performing employees. In the future, companies may be subject to enforcement action if they don't investigate suspicious activities, including "high production levels," he said. Other changes might force companies to assume liability for client losses if bad advice is provided on a systematic basis."

SIPA says - Mr. Brown's remarks are welcome news for small investors. Recently the Manitoba Securities Commission and the British Columbia Securities Commission have also been talking about revisions to regulations and improved protection for small investors.

The industry must realize that it can not continue to ride roughshod over small investors and survive long term. There have been some recent moves to reduce brokerage responsibility towards small investors by relaxing requirements for discount brokerage firms to supervise accounts for suitability. This is not acceptable unless it is counterbalanced with a requirement that these discount brokerages ensure investors know the new rules and the risks associated with investing in that type of environment.

If the regulators follow through and do make the firms accountable for the actions of their representatives and are able to order restitution it will help to clean up the industry so that in future small investors will not be faced with the almost insurmountable task of trying to gain restitution when their "trusted broker" has breached all of the rules that are meant to protect investors.