Staff from the Canadian Securities Administrators (the CSA) and the Canadian Investment Regulatory Organization (CIRO) recently issued a reminder to CCOs and UDPs of the prohibition against misleading communications resulting from advisor ranking contests.
Reminder of the rules (in case you don’t remember)
The Client Focused Reforms (CFRs), which came into effect on Dec 31, 2021, prohibit an advisor from using an award or recognition based (even partially) on that person’s sales activity or
revenue generation in client communications if it could reasonably be expected to deceive or mislead a client about their proficiency, experience or qualifications. Seems reasonable. Right?
Fast forward two and a half years
Apparently, wealth advisors still participate in ranking contests that are based on sales activity, revenue generation or assets under management. Moreover, their firms either permit this activity or do not recognize that it may be misleading.
Consequently, CSA staff members have issued a reminder of the rules and a call to action: firms and individuals should immediately take steps to get into compliance or they may receive a compliance deficiency on their next audit.
The CSA state that it may even be misleading if advisors are listed by the ranking/rating agency (that uses criteria that is deemed problematic), even where the advisors themselves do not advertise the award.
What should you do to avoid a compliance deficiency on your next review?
If you haven’t already done so, you should:
- Review your policy on misleading communications and update it if necessary;
- Clarify when an advisor ranking would be a misleading communication (for example, pay to play contests);
- Prohibit your advisors from participating in contests that would result in the publication of misleading communications;
- Remove, or require your advisors to remove, all rankings that would be considered misleading communications from all sites that are accessible to the public;
- Require advisors to request approval prior to participating in any business related awards program, so that your firm can conduct a review of the award program methodology in advance; and
Develop guidance on qualitative and quantitative criteria that would lead to advisor rankings that are not misleading and could be published by the ranking agency or included in external communications by the firm or advisor (for example, best practices, compliance records, client retention and industry expertise).
August 31, 2023