by Greg Klein | September 17, 2015
While more Canadian investors are seeking professional advice than ever, Ontario regulators have found a new way to assess advisers’ compliance. In an undercover operation from July to November last year, mystery shoppers posed as potential clients, then reported their experiences to the Ontario Securities Commission, IIROC and the Mutual Fund Dealers Association of Canada. They released their findings on September 17.
The specially trained agents consulted investment dealers, mutual fund dealers, exempt market dealers and portfolio managers. Of 105 contacts throughout the province, 88 resulted in sufficient data to assess shoppers’ experiences “against a set of benchmarks for best practice, compliant and non-compliant advice.”
For all that, shoppers found nothing that called for regulatory action.
All but one contact involved a single meeting. No accounts were opened and no money changed hands. Shoppers received specific recommendations or general advice in only 24 of the 88 contacts.
Of those two dozen shops, 86% made recommendations appropriate to the potential client’s investment objectives, risk tolerance and financial circumstances. The other 14% made unsuitable recommendations. Thorough know-your-client info was gathered in 79% of the 24 shops, 71% provided appropriate info about product fees and 63% “met or exceeded all regulatory expectations.”
Of the 88 contacts, however, only 56% informed shoppers about product fees, 52% about the risk/return relationship and 25% about adviser compensation. Advisers asked for thorough know-your-client info in 32% of the 88 meetings. “As the process varied greatly, regulators were able to conclude that investors would have difficulty comparison shopping, understanding the variety of business titles or knowing whether they received suitable advice.”
The three regulatory groups now plan “an enhancement of advisory practices, setting out clear expectations and using the findings to inform policy-making, with a view to improving the overall experience investors have when seeking investment advice.”
Although this is Canada’s first such ruse, regulators in the UK, Hong Kong and Singapore have employed mystery shoppers. Earlier this year the OSC held roundtable discussions on a proposal to reward whistleblowers.