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Invest Well. Live Well: Raising the industry bar for your best interests

At the end of 2021, sweeping new rules and regulations called client-focused reforms (CFR) came into effect that impact all banks, investment firms and financial advisors
Invest Well Live Well2

At the end of 2021, sweeping new rules and regulations called client-focused reforms (CFR) came into effect that impact all banks, investment firms and financial advisors.

Industry standards are being raised to ensure recommendations are always in the clients' best interest. Below is a brief overview of key improvements for investors:

• Know your client: Advisors are required to keep additional documentation about client preferences, needs, challenges, goals, income, etc. Emphasis is on determining risk tolerance, risk capacity and suitability. Our process is to review all aspects that could affect your wealth and build a plan within your comfort and reflects your personal circumstances.

• Know your product: Firms and advisors must perform due diligence (features, benefits, costs, risks) and consider a reasonable range of alternatives. Recommendations should be based upon an approved list. Firms with large product shelves have a lot of work ahead of them. On the other hand, firms with a small product shelf will need to allow for choice 

• Conflicts: Moving forward, we must identify, address, avoid and disclose any real or perceived conflicts. All institutions should be able to provide a conflict-of-interest statement identifying when they or an affiliate earns revenue, commission or fees related to your investments or existing relationship. Broadly, there are some prominent conflicts:

— Proprietary products: it must be clearer for clients on who gets compensated and how. Concerns were identified that institutions tend to incentivize their products and restrict access to outside funds. For example, as an employee of TD, if we recommend a TD product, we must outline the benefits to you, but also advise that TD earns additional revenues. The majority of our clients have opted for a fee-based relationship, in which our compensation is not tied to product in any way. Effectively, we are product-neutral. For full disclosure, TD products make up less than 10 per cent of our client holdings.

— Referrals: Standardized disclosures and rationale are required when referring to other professionals, including the compensation involved. An example could be introducing our insurance specialist for disability or life insurance solutions. The client may have a need for this protection, but they need to know we may receive a commission.

— Gifts, incentives and awards: TD sets maximum thresholds for permitted gifts and entertainment to avoid any perception that could influence our decision making. In addition, we will no longer be able to publicly feature any awards or incentives that include any sales-oriented accomplishments. For example, achievements like: President's Club, Executive, Chairman Council, etc. will no longer be made public.

— Rear loads: Sometimes called deferred sales charges, these will be banned as of June 1, 2022. We do not believe in these structures and do not use them and believe this change was long overdue.

• Titles: Regulators are standardizing and simplifying the titles advisors may use. Legislation will limit the use of financial planner and financial advisor to those who have obtained proper credentials. Personally, my title of vice-president will no longer be permissible and my new title will be senior portfolio manager and senior investment advisor.

The above are not exhaustive, but all attempt to put client interests first. These new standards will not change how we work with our clients, but they will create a more formal framework. Ultimately, we hope investors' confidence rises in respect to their advisor, investments and likelihood of achieving their goals.

This document was prepared by Eric Davis, portfolio manager, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.