Under IIROC Rule 2500 ,IIROC dealers are allowed to use a single account application for a client, in cases where the client's
investment objectives and risk tolerance are identical for all of the accounts
covered by the application. A single form can make sense if an
investor's investment objectives, risk tolerance/profile , time horizon and tax
situation are truly identical for all of his/ her accounts. It makes less sense when the "advice" is provided by non-fiduciaries operating under the lowly suitability standard.
Many investors may want to take different approaches in various accounts, for
instance emphasizing interest income in a registered plan such as a RRIF and
capital appreciation in a cash or margin account, or having different time
horizons or risk tolerance in various accounts to meet specific financial objectives. That's not a problem for those retail investors who have enough
investment experience to recognize that various accounts may have different
objectives, risk tolerance and time horizons, and can clearly state their views to a
dealing representative ( aka "advisor"). But there are a lot of others who may be relatively
unsophisticated and not understand the implications of a one-form-fits-all
approach.
What
really stands out for us is the statement that, "The client understands that the accounts on the same account
application will be assessed for suitability on a multiple account or portfolio
basis." We question what percentage of retail investors will really
understand what that means. The Mutual Fund Dealers Association of Canada approach
says that "suitability must be analyzed for each individual account. The
fact that the client may have other assets in other accounts, or with other
institutions, should not be taken into account."
In our view,
the IIROC approach favours the dealer while the MFDA approach favours the
client. If suitability is assessed on a portfolio basis, an investment dealer
could argue that a single holding which might represent a major portion of a
client's RRIF account would be suitable if it were looked at in terms of that
client's total holdings. Using MFDA rules, that holding would have to be
assessed for suitability on the RRIF account only, even if the client's other
accounts had identical objectives and risk tolerance. If an investor were to
suffer a significant loss in a specific holding, the outcome of a complaint might rest on whether it was viewed in the context of a single account or on a multi- account ( portfolio) basis. Accordingly, we have asked IIROC to amend their Rule 2500 to exclude
RRIF accounts . See our letter here.
