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Canada (IIROC) issued a request for comments on draft guidance concerning the compensation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Specifically, the draft guidance considers the advantages and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IIROC's draft guidance suggests that dealer members may need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Comments on the draft guidance are being accepted for 90 days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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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