CSA Issues Guidance on Relationship Disclosure Practices for Portfolio Managers and Exempt Market Dealers
Last week, the CSA published Staff Notice 31-334 – CSA Review of Relationship Disclosure Practices. The notice summarizes findings of a recent CSA compliance review of registered portfolio managers (PMs) and exempt market dealers (EMDs) and provides guidance on relationship disclosure information (RDI) practices.
CSA Guidance for Preparing, Reviewing, Delivering and Revising RDI:
Registered firms must:
- Have RDI policies and procedures that establish a system of controls and supervision sufficient to provide reasonable assurance that the firm and each individual acting on its behalf complies with securities legislation;
- Take reasonable steps to notify clients, in a timely manner, of significant changes in respect of the RDI delivered to a client.
Registered firms should:
- Have written policies and procedures regarding the preparation, review, delivery and revision of, relationship disclosure documents;
- Ensure RDI contains information that:
- is accurate;
- is complete;
- is up-to-date;
- is meaningful;
- is understandable;
- enables clients to make informed investment decisions;
- clearly explains the products and services the firm offers;
- contains adequate description of the fees and costs associated with those products and services;
- provides sufficient explanations of the risks a client should consider when making investment decisions;
- Review their RDI annually or more frequently, as necessary.
As of July 15, 2013:
- RDI is to be delivered to the client in writing. A general description of the products and services the registered firm offers to the client may be provided orally if the firm maintains evidence of the discussion;
- The guidance about RDI communication in the companion policy to National Instrument 31-103 - Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) is expanded;
- Registered firms are prohibited from imposing any new or increased operating charge in respect of a client’s account unless 60 days’ prior written notice is provided;
- Cost disclosure requirements outlined in NI 31-103 are more specific;
- Firms are required to separately disclose applicable information about "operating charges" and "transaction charges" as defined in NI 31-103 and its companion policy.
List of Deficiencies Identified During the CSA Review (From Most Frequently Identified to Least Frequently Identified):
- Description of the risks of using borrowed money to finance a purchase of a security;
- Information a firm must collect about the client (Know Your Client);
- Statement that the firm has an obligation to assess suitability prior to executing a transaction;
- Description of the content and frequency of reporting for each account or portfolio of a client;
- Description of the types of risks that a client should consider when making investment decisions;
- Description of the nature or type of client account;
- Description of the conflicts of interest the firm is required to disclose to a client;
- Disclosure of all costs to a client for the operation of an account, and description of the costs clients will pay in making, holding and selling investments;
- Discussion that identifies the products or services offered by the firm;
- Description of the compensation paid to the firm in relation to different types of products that a client may purchase.
List of Practices that the CSA Finds Acceptable:
- Firms provide RDI in separate documents, such as the Investment Management Agreement, Advisory Agreement, Investment Policy Statement, Know Your Client forms and offering documents, which together give the client the required information;
- Firms typically provide RDI to clients at the time of account opening, and at the very least, before making or advising the client to make an investment;
- Firms personally deliver RDI to the client, and if that is not possible, send it to the client by mail, electronically or by fax;
- Firms require clients to acknowledge receipt of the disclosure documents;
- Firms keep signed copies of all relationship disclosure documents either in hard copy or electronic format;
- Firms advise clients in a timely manner if there is a significant change to the RDI by letter, phone or email, and require clients to acknowledge the change.
For a full list of RDI issues and related CSA guidance for PMs and EMDs, please see the CSA Notice.
exempt market dealer Know Your Client National Instrument 31-103 RDI relationship disclosure information risk Staff Notice 31-334 suitability