On September 17, 2015, the OSC, IIROC and MFDA released the
results of their joint "Mystery Shopping for Investment Advice"
initiative. This exercise, conducted in 2014, involved sending
individuals to meet with Ontario-based advisors, including
investment dealers, mutual fund dealers, exempt market dealers and
portfolio managers. While the individuals purported to have a lump
sum to invest, no real funds were actually provided for investment,
which meant that the investigation could deal only with the initial
stage of engagement between investor and advisor.
The aim of the study was to conduct 37 or 38 meetings with each
of the four advisor categories, for a total of 150. However, the
number of meetings actually conducted (105) fell somewhat short of
this, largely because of the difficulties in arranging meetings
with exempt market dealers (EMDs) and portfolio managers (PMs).
Only 11 EMD meetings and 13 PM meetings took place, rather than the
37 that had been anticipated in each case. By contrast, 30
investment dealer meetings and 34 mutual fund dealer meetings went
ahead, out of the 38 that had been anticipated in each case. Of the
105 meetings actually conducted, only 88 produced enough data to be
used in the study.
Compliance was generally good, with 63% of the "shops"
meeting or exceeding all expectations. With respect to the 88
meetings that ultimately supplied the data for the study, the
report shows a fairly consistent level of dissatisfaction (around
30%) with overuse of jargon by all classes of advisor other than
portfolio managers. Similarly, about 20-30% of the advisors other
than PMs did not disclose the range of products or services they
offered. Fees were discussed at the initial meeting by 77% of PMs,
67% of investment dealers and 55% of EMDs but just 38% of mutual
fund dealers. Advisor compensation, as distinct from fees, was
discussed by approximately 20-30% of advisors in each of the four
Specific investment recommendations were made in only 24 of the
88 shops, with seven of those 24 being deemed unsuitable for a
variety of reasons, including a failure to evaluate the
investor's risk tolerance and a failure to adequately consider
asset concentration. Among the 24 advisors who made recommendations
(which did not include any of the PMs), 79% obtained adequate KYC
information and 71% appropriately discussed product fees. While the
figures are broken down by category of advisor, the numbers of each
are so small that the differences among them are probably of
limited statistical significance. No serious non-compliance
requiring regulator action was uncovered in the course of the
According to the OSC's press release, the next steps to follow from
this initiative will be to use the findings to inform policy-making
"with a view to improving the overall experience investors
have when seeking investment advice." Firms and advisors are
encouraged to review the "Mystery Shopping" report (known
as OSC Staff Notice 31-715), which details the
level of compliance found with respect to many of the fundamental
duties applying to advisors in Ontario and across Canada.
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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