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Canadian securities regulators have approved a set of investor protection rules that aims to hold advisers accountable for the investment decisions they make for clients, but investor advocates say the changes fall short.

Known as client-focused reforms, the set of rules requires financial advisers to put clients’ interests first when deciding on which investments best suit their needs and do more to clarify what investors should expect from their advisers.

“Taken together, these changes mean better protection for retail investors across Canada, and a high and uniform standard of conduct for all registrants,” said Louis Morisset, chair of the Canadian Securities Administrators.

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Part of the changes expand requirements on the type of information advisers need to collect before assessing what is a suitable investment recommendation for a client. Documents known as “know your client” and “know your product” will add more questions on an investor’s profile, including personal circumstances not limited to financial circumstances, a client’s investment knowledge, a client’s risk tolerance and the investment time horizon.

However, investor advocates say the changes are too watered down, without any real checklist of what can and cannot be done by investment advisers.

“Obviously, it’s good for a client to have a sense of what they are getting relative to what they are paying,” said John De Goey, a portfolio manager with Wellington-Altus Private Wealth. “If an ounce of prevention is worth a pound of cure, then what I’d like to see is something that forces [advisers] to comply with directives and gives investor clients an unambiguous ‘smoking gun’ checklist of things to demand – with teeth.”

The rule amendments have taken several years of industry discussions, which included two consultation papers and public round tables. At the same time, the CSA proposed changes in 2018 to ban certain investment fees charged to investors when they withdrew their funds early, known as deferred sales charges, and curtail some commissions collected by discount brokerages − or do-it-yourself investing services. The proposal to ban certain fees was later opposed by the Ontario government and put on hold.

”These amendments don’t mean squat if the CSA continues to allow discount brokers to receive trailing commission or advisers to sell DSC funds," says Ken Kivenko, an investor-rights advocate. “It’s hard to see how either of these can co-exist with these provisions as lightweight as they are."

The CSA says it will continue to review the proposal to ban certain fees and commissions. Investment fees continue to be under scrutiny for being some of the most expensive in the world. A recent Morningstar report showed Canada still scored below average in an international ranking of how much mutual-fund investors pay in fees. It’s common for Canadian investors to pay about 2 per cent annually to hold mutual funds sold by advisers.

Fees need to be factored in when looking at what is in the best interest for a client, but it is not the ultimate factor, said Mr. Morisset, who is also the president of Autorité des marchés financiers. “You can definitely put your clients’ interests first in recommending a product that has some fees that are higher than another product, but the features of the product may be more convenient or suitable for the client.

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“[Advisers] will need to consider the fees but also all other aspects to recommend the most suitable products available.”

The rules will come into effect at the end of 2019 and apply to all advisers, investment companies and representatives, including those who are members of the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada.

The CSA says the changes will be transitioned in phases over a two-year period and it intends to develop additional reforms to address other industry standards, including reviewing proficiency standards, referral arrangements and professional titles and designations.

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