Addressing conflicts of interest in adviser-client relationships
Many Albertans work with a registered adviser to grow and maintain their wealth. To achieve the best results, clients must be open and transparent about their finances and goals and in turn, registered advisers must align investment portfolios and products to meet their client’s time horizons and risk profile.
To further enhance investor protection, improve the foundation of adviser-client relationships and standardize services of investment firms and advisers, the Canadian Securities Administrators, which includes the Alberta Securities Commission, published a comprehensive set of rules known as client-focused reforms on October 3, 2019. Under these reforms, conflict of interests provisions were implemented on June 30, 2021 with the remaining rules coming into effect on December 31, 2021.
What does client-focused reforms do?
Under client-focused reforms, registered firms and advisers are required to put the interest of the client first when recommending or choosing investments and address all material conflicts of interests in the best interests of the client (if the conflicts of interest cannot be addressed in the best interest of the client they must be avoided). Material conflicts of interests are factors that could influence the impartiality adviser’s should have when recommending investments. If there are any material conflicts, the adviser or firm must inform the client of the conflict in a timely fashion and detail how they are being addressed in the client’s best interest.
What are the material conflicts that may occur with your registered adviser?
There are situations in which a registered adviser may have a material conflict of interest with clients. For example, there may be situations in which a registered adviser may be paid a higher commission for selling a certain type of investment, which may influence their decision on what to offer their client.
Alternatively, a firm or registered adviser could offer that client a similar product that is more cost-effective and suitable.
How to talk with your registered adviser about client-focused reforms and material conflicts of interest?
Talking with your registered adviser routinely is not only recommended for ensuring your investments are tracking towards your goals, but is an important step in taking an active role in understanding what you are investing in. Follow these key steps to strengthen your relationship with your registered adviser and address conflicts of interest as they arise:
1) Ask questions and get satisfactory answers: If you are confused with what has been communicated, be sure to ask questions and only move forward when you have what you need to make an informed decision. Do not feel intimidated to ask questions, remember an adviser works for you after all.
2) Discuss any conflicts of interests: Registered advisers should work on your behalf and in your best interest, so take the time when you meet or talk with them to understand if the investment products they are proposing, or you are already invested in, are right for you. If you feel there may be a product that is better suited for your goals, bring it to your registered adviser’s attention and request answers before you agree to move forward.
3) Get information in writing: Getting all information in writing, especially information about any areas in which you are concerned, can help you better assess the investments offered to you and enable you to do it at your own pace, outside of the meeting.
By taking these steps to identify and address material conflicts of interest, you can better understand the investment products available to you and ensure that your registered adviser continues to offer you the investment products that put your interest’s first.