On December 20, 2010, a working group of provincial/territorial
government representatives released for comment a long-awaited
consultation paper on possible options that would allow for the
incorporation of individual sales representatives of registered
dealers and advisers. Consultation on Possible Options for the
Incorporation of Individual Representatives of Registered Dealers
and Advisers in Canada[available here] is open for comment until
February 25, 2011.
The working group emphasizes that no government or securities
regulator has approved the various options and that the
Consultation Paper is intended to stimulate discussion and
The Consultation Paper provides a useful background to the
issues around incorporated salespersons, including a discussion on
the drawn-out history of the practice of "directed
commissions" that has grown up in the mutual fund dealer
community, which was recently sanctioned by the Mutual Fund Dealers
Association of Canada with the finalization of MFDA Rule 2.4.1.
The Consultation Paper presents three possible options to deal
with industry requests for more flexible alternative business
structures. The first two options would involve amendments to the
various provincial securities acts, which is why the Consultation
Paper was released by a working group of government officials and
not by the securities regulators. The Consultation Paper provides
no sample legislative amendments however, and the details about
each proposal are only very briefly presented.
Legislative proposal developed by the Alberta Securities
Commission (ASC). This previously unpublished proposal recommends a
legislative framework for incorporation of sales representatives of
registered dealers and advisers. Under this proposal, the
corporation of a sales representative would apply for an annual
permit from the Executive Director (presumably of each applicable
securities commission where the sales representative is registered)
to authorize it to provide trading or advising services to clients.
There would be restrictions on shareholdings in the applicable
corporation and a regime to ensure that the individual sales person
and the applicable dealer/adviser firm remain liable to the client
and securities laws continue to apply to both the dealer/adviser
firm and the individual salesperson.
Legislative proposal recommended by Advocis, the industry
association for financial advisors and planners. Its proposal for
legislative changes is reportedly based on the regulatory
requirements found in the life insurance sector. Advocis'
proposal is more lenient than the one proposed by the ASC, but the
essential principles outlined in connection with the ASC proposal
would be respected.
Regulatory permission to allow all dealers (and presumably also
advisers) to pay commissions/compensation to the non-registered
corporations of individual sales representatives. This option is
presented as one designed to level the playing field for IIROC
member firms and representatives, so that these firms and
representatives could organize their affairs similar to MFDA
members and MFDA Rule 2.4.1.
The working group asks for comments generally on the options, as
well as responses to six specific questions, which include
questions about the tax consequences of the proposals, regulatory
obstacles to implementation of the proposals and concerns as to
We would be pleased to assist you in developing a comment letter
in response to this Consultation Paper. We intend to analyze the
various options, and the issues raised by the working group with a
view to providing the working group with our views
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