IIROC releases draft guidance regarding Dealer Members' compensation arrangements with retail clients
On August 14, the Investment Industry Regulatory Organization of Canada (IIROC) issued a request for comments on draft guidance concerning the compensation arrangements offered by dealer members to retail clients. Specifically, the draft guidance considers the advantages and disadvantages of commission-based and fee-based accounts and ultimately provides a number of specific issues that IIROC wants dealer members to consider in determining the suitability of compensation arrangements for any given client.
IIROC's draft guidance suggests that dealer members may need to adjust long standing supervisory practices to ensure current practices are appropriate for both fee-based and traditional commission-based accounts and suggests that proper procedures should be in place to: (i) assess suitability at account opening to take into account the factors applicable to commission and fee-based accounts, including whether the client engages in or plans to engage in frequent trading and the relative size of the assets of the account; (ii) provide the disclosure required for commission-based and fee-based accounts and how they differ from one another; (iii) have effective account activity supervision procedures in place, including alternative methods for selecting and reviewing accounts when dealing with fee-based accounts; (iv) regularly review compensation structure suitability; (v) prevent double charging as a result of embedded commissions or improper transfers between commission and fee-based accounts; and (vi) provide adequate disclosure to clients regarding the true costs associated with investment choices, including where products have built-in fees.
Comments on the draft guidance are being accepted for 90 days from the publication of the notice. For more information, see IIROC Notice 12-0253.