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The industry has been carefully watching the Canadian Investment Regulatory Organization (CIRO) publications on advisor compensation options. Recently, the Canadian Securities Administrators (CSA) published a recognition of CIRO Bulletin #25-0297 Update on the project to develop rule amendments relating to the proposed adoption of an incorporated advisor compensation option.
Currently, if an individual advisor is sponsored by an investment dealer, the applicable rules require them to be compensated directly as either an employee or individual agent of their sponsoring dealer. If an individual advisor is sponsored by a mutual fund dealer, the applicable rules require them to be compensated directly as either an employee or individual agent of their sponsoring dealer, or under specified conditions, a part of their compensation can be paid to the advisor's personal corporation for activities carried out by the corporation on the sponsoring dealer's behalf.
In the CIRO bulletin #25-0297, it is noted that CIRO will propose amendments to harmonize the allowable compensation options for individual advisors sponsored by investment dealers or mutual fund dealers while ensuring that investor protection regulatory obligations to clients remain obligations of the sponsoring dealer, the relevant individual sponsored advisors and of the sponsored advisor's personal corporation (and potentially the personal corporation's employees and shareholders). Dealers must supervise activities conducted by the advisor and the advisor's corporation on their behalf.
The proposal is expected to include, amongst other things, that the use of personal corporations would be limited to client-facing Approved Persons and that the corporation would need to be approved by CIRO under a new non-individual category of Approved Person, "Incorporated Approved Person", to ensure that CIRO has jurisdiction over its registerable activities. In addition, the shareholders of the advisor corporation would be limited to an enumerated list of people, while voting ownership must be controlled by the individual advisors that provide qualifying regulated financial services to clients through the corporation.
In its press release, the CSA noted that CIRO is continuing to pursue this policy work and that the CSA will continue to monitor CIRO in this regard in the ordinary course as CIRO drafts rules subject to approval by the CSA.
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