Bay Street , Investor Vulnerability and Canadian Society ( Why a Best interests Standard is needed)

Regulators portray retail investors as diligent, fairly sophisticated and logical. The academic literature, produced primarily by finance professors, finds that investors are generally uninformed and financially unsophisticated. Most investors are unaware of the basic characteristics of their investments, pay little attention to costs (especially ongoing costs), and chase past performance despite little evidence that high past returns predict future returns. The CSA's belief that retail investors can fend for themselves, once armed with adequate disclosure, fails to appreciate the extent of investors' limitations and vulnerabilities. Instead, the findings of the academic literature as summarized in this paper suggest that policymakers should rethink current securities regulatory policy. This paper provides detailed rationale why a fiduciary Best interests standard is required to protect Canadian investors, the vast majority of which are in fact vulnerable to mis-selling. While disclosure may be necessary, it is not enough to protect the typical retail investor. There is an urgent need to tackle investor vulnerability in the Canadian financial industry as a pressing socio-economic issue.