Securities Law & Instruments

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OSC Staff Notice 31-715, IIROC Notice Number 15-0210 and MFDA Bulletin Number 0658-C – Mystery Shopping for Investment Advice: Insights into advisory practices and the investor experience in Ontario

Ontario securities laws and the rules of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) require registrants to deal fairly, honestly and in good faith with clients. Collectively, they set out the principles of “Know-Your-Client” (KYC), “Know-Your- Product” (KYP) and suitability obligations for registrants. These obligations are the core investor protection controls that work together to require advisors to know the client, know the product and then to make recommendations that are suitable to the client’s specific circumstances.

The Ontario Securities Commission (OSC), IIROC and MFDA are committed to advancing regulatory reforms that put the interests of investors first. The OSC has undertaken a number of research projects to collect and analyze data to determine whether any specific regulatory measures are needed to improve the quality of investment advice and the client experience in their interactions with advisors in the securities sector. Mystery shopping is one of the forms of research we chose to conduct to inform our decisions on these crucial investor protection policies. Mystery shopping is a form of consumer market research where individuals, acting as potential customers, are trained to objectively record their observations and interactions with service providers.

The OSC, IIROC and MFDA undertook a joint mystery shopping initiative to gain insights into the advice process through the eyes of potential investors on four investment platforms: exempt market dealers, investment dealers, mutual fund dealers and portfolio managers. By taking this perspective, we could see how investors participate in the advice process, how they understand it and what their expectations are when they get advice. We were also able to reflect on how those experiences and their understanding and impressions correspond with our regulatory expectations for compliance.

The OSC, IIROC and MFDA have published today a report (Report) on the results of the mystery shopping research. The Report sets out the key findings, conclusions and the next steps we plan to take to address the findings. It also includes detail on other aspects of the initiative, including the mystery shop research design and roll-out and the evaluation benchmark used to evaluate the shops. The report is available on the OSC’s website at www.osc.gov.on.ca. It is also available on www.mfda.ca and www.iiroc.ca.

September 17, 2015

Questions

Questions concerning the Report may be referred to:

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