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Canadian securities regulators are looking to improve the relationship between Canadian investors and their financial advisers, which could see the introduction of a mandatory best interest standard to hold advisers accountable for the investment decisions they make for clients.

The Canadian Securities Administrators (CSA) published a consultation paper Thursday titled, "Proposals to Enhance the Obligations of Advisers, Dealers and Representatives Toward Their Clients, " in the hopes of improving the relationship between clients and their advisers, investment dealers and representatives. (The CSA published an earlier paper in 2012).

"With the publication of this consultation paper, the CSA expects to open a dialogue with all market participants on improving the relationship between clients and their advisers and dealers," said Louis Morisset, chair of the CSA and president and chief executive officer of the Autorité des marchés financiers, in a statement.

The consultation paper includes "proposed targeted reforms" to existing regulatory guidance for the investment industry.

Regulators across several jurisdictions are asking for industry feedback on the "proposed targeted reforms" before recommendations will be made to the industry. The proposals span a number of areas including the regulation of conflicts of interest, the know-your-client and know-your-product requirements, the suitability obligation and the use by registrants of business titles.

If approved, these potential reforms are intended to better align the interests of registrants – or advisers – to the interests of their clients and enhance various specific obligations that registrants owe to their clients.

In addition, the consultation paper includes a proposed regulatory best interest standard that all jurisdictions – all the provinces except for British Columbia – have agreed to examine further.

The best interest standards would be in addition to the "proposed targeted reforms" and would require that a registered dealer or registered adviser must deal fairly, honestly and in good faith with clients and act in clients' best interests, as well as a representative of a registered dealer or registered adviser.

"I don't think Canadians deserve any less than a best interests standard, and our commission has been clear that they believe that there needs to be a best interests standard for investors in this complex market," said Maureen Jensen, chair and chief executive officer of the Ontario Securities Commission, in an interview with The Globe and Mail.

If the proposed regulatory best interest standard is introduced, the changes would apply to all advisers, investment firms and representatives, including those who are members of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA).

The comment period on the consultation paper is open for 120 days and Ms. Jensen says she hopes to see recommendations put in place by early next year.

"These are very important initiatives and they require a significant amount of change," she said. "It's of extreme value to have the whole country come together with a common understanding of how this can be done. It's one thing to have an aspirational goal, it's quite another thing to be able to deliver it across the country, and this is exactly what we need to do. This is necessary for investors."

Currently regulators in Ontario and New Brunswick are the only jurisdictions who are strongly backing the introduction of a regulatory best interest standard, while Alberta, Quebec, Manitoba and Nova Scotia want to further explore the proposal.

Ian Russell, CEO of the Investment Industry Association of Canada, says if the targeted reforms are introduced the implementation of a best interest standard may not be necessary.

"The proposed changes are well thought out reforms and along with the new CRM2 rules, and the changes to point of sale documents, they will enable the adviser in the firm to more effectively meet the obligation of dealing honestly, fairly and in good faith with the client," says Mr. Russell. "As a result, it will engender confidence among investors and have a very positive outcome in the end."

With files from Janet McFarland

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