Attracting Capital to the Wealth Management Business (IIAC Blog)
My latest Letter from the President describes the opportunities and challenges for the retail investment industry. While we estimate about 30 retail boutiques lost money, on a net basis, in each of the last four years, it is important to stress that many small and mid-sized firms have been profitable.
Firms have made herculean efforts to control cost increases through staffing reductions, increased reliance on technology and out-sourcing, and adjustments to advisor compensation grids.
Firms have also focused efforts on improving advisor productivity through training and continuing education programs. They have boosted their competiveness by providing real-time access to advisors and accounts; a full complement of products and advisory services; a balanced approach between fee-based or discretionary management and value-added financial planning and tax expertise; effective recruitment of advisors; and a smooth transition from older to younger advisors. Some firms have segmented advisory services across different client categories and established pricing schedules for individual services.
These measures will improve the bottom line and return on equity, drawing capital to smaller firms.
While there may be further attrition among small and mid-sized firms in the investment dealer retail business in coming years, we are optimistic the many firms that survive will be effective and profitable purveyors of wealth management advisory services, with their clients the big winners.
The Cost-Benefit Thinking of Securities Regulators Needs to be More Transparent (IIAC Blog)
Cost–benefit analysis is a valuable tool for assessing major public policy decisions, projects and regulations—for example, evaluating prospective regulations in a number of fields, including health, safety and the environment. The nature of securities regulation, however, makes costs-benefit analysis more difficult. Rather than focusing on a particular action, like releasing a pollutant, financial regulation cost-benefit analysis focuses on behavioural and market reactions.
Canadian securities regulators have refrained from conducting formal (quantitative) cost-benefit analysis because it is so complex. However, this not an excuse to avoid it. A more disciplined and rigorous approach to the rule-making process—one that quantifies the costs and the benefits in commensurable terms—is needed.
Regulators do engage in extensive, informal discussions (qualitative analysis) with market participants at the formulation stage of the rule-making. A detailed “walk-through” of regulators’ thinking would greatly enhance the process. Regulators should be able to answer questions like:
What gap is the proposed rule intended to fill?
Have alternatives to the rule been considered and, if so, why has the particular rule be chosen over alternatives?
What are the perceived shortcomings/unintended consequences of the rule?
The obligation to disclose the detailed background thinking on rule formulation and its impact on investors and the marketplace would foster a more disciplined approach to the rule-making process itself. It would encourage deeper and more systematic thinking on the market impact of proposed rules, and lead over time to more quantitative analysis. You can read more on this subject in my latest Letter from the President.
FS-ISAC Collaborates with IIAC and SIFMA on First Monthly Update on Cybersecurity (IIAC Blog)
The Financial Services Information Sharing and Analysis Center (FS-ISAC), the Investment Industry Association of Canada (IIAC) and the Securities Industry Financial Markets Association (SIFMA) are working together to provide to you a monthly newsletter that highlights cybersecurity topics and emerging threats to the securities industry within North America.
The information provided in the monthly newsletter is intended to increase the cybersecurity awareness of an organization’s end users and to help them behave in a more secure manner.
CSA Proposals to Enhance Firms’ and Advisors’ Obligations Towards Clients (IIAC Blog)
The IIAC filed a submission with the Canadian Securities Administrators (CSA) in response to its Consultation Paper 33-404:Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients.
The IIAC has carefully examined the Consultation Paper, identifying some areas of constructive reform, while questioning the merit of some proposals.
Please click here to view our news release. You can access our full submission here.
The ‘Top of House’ Issues Facing the City of London and Implications for Financial Services (IIAC Blog)
Now that the UK has voted to leave the EU, what will happen next? When the UK government starts to negotiate the withdrawal process, two key issue will need to be taken in consideration. The first, and most essential, will be the terms of the UK’s exit from the EU. The second will be the negotiation of a new relationship between the UK and the EU.
My recent trip to London and meetings with key officials provided the opportunity to better understand the underlying themes and implications of Brexit for the UK, the City of London and the financial services sector. I write about this in my latest Letter from the President.
The other issue dominating discussion and debate in the UK is the implementation of the recommendations of the Fair and Effective Markets Review. The purpose of the recommendations is to enhance the fairness of Fixed Income, Currency and Commodities (FICC) markets while also boosting their overall effectiveness, by increasing confidence and reducing risk. The IIAC will review the newly developed FICC market standards, monitor ongoing progress on development and implementation, and consider the merits of a Canadian version of the FICC standards.
You can access the Letter from the President by clicking here.
Facilitating Access to Equity Capital for SMEs (IIAC Blog)
In the last three years, the estimated dollar value of financing in public and private markets for listed small businesses has fallen by half, to just over $1 billion a year. Equity financing for private small companies through the venture capital markets has increased steadily in this recent three-year period but is still averaging just over $2 billion a year. The domestic venture capital funds are an important, albeit relatively modest, source of equity capital for small business, reaching overall annual funding of about $1 billion a year, slightly less than U.S. venture capital investments in the Canadian market.
For Canada’s economy to grow and create jobs, it is vital that small and medium-sized enterprises (SMEs) have access to the equity capital needed to seize business opportunities quickly.
In an article featured in Policy Options, the flagship publication of the Institute for Research on Public Policy (IRPP), I outline the IIAC’s recommendations to facilitate access to equity capital for SMEs.
Special to Financial Post: Believe in the securities regulator’s board, the glass is still half full (IIAC Blog)
Extended delay in implementing the cooperative regulator, announced with the recent appointment of the Board of Directors, coupled with the reality of large provinces likely not participating in the new regulatory structure, have sparked media commentary that the cooperative effort may be doomed to eventual failure.
Skepticism is understandable, but one could take the opposite point of view. In my FP Comment I look at the part of the glass is half full.
Click here to read my Op-Ed, special to Financial Post.
Client’s Best Interest Not Effectively Achieved by a Specific Rule or Regulation (IIAC Blog)
Professor Mary Condon, former Commissioner of the Ontario Securities Commission (OSC), wrote an Op-Ed in the July 2016 issue of Investment Executive (IE) outlining the OSC’s position on the “best interest” standard.
She argued eloquently that a client best interest standard should be imposed on financial advisors and investment dealers. In her words, investors deserve no less. Condon puts it succinctly: a best interest standard “puts the client’s interests first” in all dealings.
The IIAC weighed in. In a Letter to the Editor I argued regulators should get the rules, guideposts and right culture in place, and that will ensure that the client’s best interests come first. A new rule to require this desired regulatory outcome is not needed.