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We need a call for Canadians to deploy their savings in support of small businesses. But a call must go out equally to our investment industry to provide financial advice in investors’ best interests.

Nathan Denette/The Canadian Press

In all likelihood, COVID-19 will shatter this country’s small and medium-sized business sector. Many of those enterprises simply are not going to survive.

Their demise will bring dire job losses. Small businesses employ almost 70 per cent of Canada’s private labour force. Medium-sized firms account for another 10.5 per cent. Between them, they generate about three-quarters of our net employment growth.

Now, a large chunk of that is about to vanish – and we’d better get focused, fast, on a singular hard truth: there will be no economic recovery unless we rebuild our nation’s contingent of small and medium-sized businesses.

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But we can’t accomplish that through government subsidies. Although they’re a lifeline today, keeping those supports in place in the long term will breed dependency, not vigour and resilience. And more loans from banks, even on lenient terms, will just put our hard-pressed entrepreneurs further in the hole.

Instead, what’s required is sustained equity infusion. We need to mobilize private capital and innovation in our financial markets to channel investment dollars toward the small and medium-sized business ecosystem that generates so much of our prosperity.

In effect, we need something akin to a wartime effort – a call for all Canadians to deploy their savings in support of domestic light industry, budding startups and local commerce of every kind.

However, answering this call will entail considerable risk for retail investors. Failure rates among new ventures and small companies can be high. So, if we expect average Canadians to shoulder that risk for the good of the nation, we owe it to them to treat their capital as a precious national resource.

That means we have an obligation to provide them with the best possible support for navigating an uncertain financial landscape in a post-COVID-19 world. Most will need reliable, expert guidance to help them sift through a proliferation of new offerings in the private equity market and, almost certainly, an explosion of crowdfunding campaigns.

So, the call must go out equally to our investment industry to step up. More than ever, financial advice now needs to be provided with high-calibre proficiency and the very highest degree of professional integrity. Likewise, investment products must be structured, marketed and distributed through sales channels aligned, as far as possible, with investors’ best interests.

There can be no more compromises on these factors and no more provisos to accommodate the investment industry’s static ways and preferences. That’s because our society can no longer afford to have investment capital squandered or placed in harm’s way through inexpert advice, or diverted into inefficient uses by conflicts of interest, or eroded by high fees.

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Fortunately, tools already exist to upgrade investment advice significantly. Before the coronavirus disrupted all of our lives, the Canadian Securities Administrators, the umbrella organization of Canada’s provincial and territorial securities commissions, was on the verge of implementing a spate of new rules designed to impose higher professional standards.

Neil Gross, president of Component Strategies, a capital markets policy consultancy based in Toronto.


These far-reaching client-focused reforms include obligations to make clients’ best interests the essential touchstone for all investment recommendations and for the management of conflicts of interest. In addition, a nationwide prohibition against mutual funds paying advice fees to discount brokerages, which provide no advice, is ready for launch. So, too, is a multi-jurisdictional ban on the use of deferred sales charges by mutual funds – a discredited practice that’s been shown to harm investors and undermine market efficiency.

Everyone needs to get behind these measures now, with no more quibbling about their implementation. Yes, they’re complex and they’ll be difficult to operationalize. That will be burdensome for financial services firms and advisors – especially while they cope with the profound challenges posed by COVID-19.

But these reforms are critical to our economy’s recovery from this crisis. Without them, what we’re likely to witness in the weeks and months to come will be a widespread boarding up of shops, offices and factories.

So, while some flexibility on phase-in of these client-focused reforms was necessary when the pandemic first erupted, policy-makers and regulators now must approach the initiative with a renewed sense of purpose and urgency.

They should entertain no thoughts of putting on the brakes or paring down the reforms. They should give no audience to entreaties that this is not the time for such measures. Now is precisely the time when these things must be put in place – to make economic recovery possible and to work for us all as we emerge from the crisis and begin to rebuild together.

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Neil Gross is president of Component Strategies, a capital markets policy consultancy based in Toronto.

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