How CIRO's new guidance for DIY investing compares with proposals from U.K. regulator

Globe and Mail

a day ago

The growth of online investing has introduced millions of new investors to markets, but they're not always using the best information when making investment decisions.
Regulators in Canada and elsewhere have raised concerns about do-it-yourself (DIY) investors relying on unregulated advice from social media and so-called 'finfluencers,' sometimes resulting in high-risk investments.
Part of the issue is how advice is regulated. Online investing platforms are restricted from making recommendations, as self-directed investors haven't undergone suitability assessments.
The Canadian Investment Regulatory Organization (CIRO) took a step toward changing that this week. As Kelsey Rolfe reported, CIRO's proposed guidance (which is out for consultation until Nov. 10) narrows the definition of 'recommendation' significantly to communication that 'endorses a specific investment decision for the client.'
That means order-execution-only dealers will be allowed to provide 'decision-making supports' to DIY investors. These include tools to help find securities that align with an investor's strategies and goals, and sample portfolios that help with asset allocation (without mentioning specific investment products).
The U.K. regulator is looking to go a step further. In June, the Financial Conduct Authority (FCA) released its own proposals that would allow firms to offer free, 'targeted support' to groups of investors with common characteristics.
For example, firms are currently allowed to suggest to a consumer that they're in a position to invest; under targeted support, the firm would be allowed to suggest a specific investment product.
For those already investing, firms would be able to not only flag risky investments and offer explanatory materials, but suggest an alternative product. Similarly, when an investor holds an expensive fund, firms would be allowed to suggest a product that costs less.
As with CIRO, the proposed change revolves around online investing platforms making recommendations. To adopt the proposals, the U.K.'s Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 would need to be amended to create a new specified activity of 'targeted support,' different from existing forms of advice.
With investing becoming easier and cheaper, it makes sense for better information to be more available, too. But what does this mean for advisors?
CIRO said in its initial consultation that it doesn't want to 'diminish the value' of the full-service advice channel. The FCA makes it clear that the targeted support proposal is a compromise: not as beneficial as more personalized advice, but a worthwhile tradeoff in the absence of support. And research has shown that most DIY investors want advice from a human at some point.
Still, the proposed changes raise the bar ever so slightly, putting more pressure on advisors whose practices are built on investment recommendations without offering the personalized financial, tax and estate planning that isn't available cheaply and generically.
A perfect storm: The wealth management industry is experiencing an unprecedented wave of consolidation. Combined with aging advisors behind on their succession planning, the result is a perfect storm of capital, urgency and opportunity, writes Joe Millott of Fort Capital Partners.
What's in a name? In June, the Investment Industry Association of Canada (IIAC) changed its name to the Canadian Forum for Financial Markets (CFFiM). As Rudy Mezzetta reports, the move follows other rebrands from major industry organizations in the past two years, and the entrance of a new competitor.
Sage advice: For money manager Paul Harris, investing is akin to meditation, especially when markets are as volatile as they've been lately. 'When you meditate, you're supposed to let things happen and not react. It's the same kind of philosophy I have with investing, which is to just absorb what's happening, because often it's only short-term,' says Mr. Harris, a partner and portfolio manager at Toronto-based Harris Douglas Asset Management Inc. Here's what he's buying and selling.
Fraud risk: In early January, Megan Tong lost around $70,000 after hackers logged into one of her self-directed investment accounts, cashed in all her holdings and briefly bought and sold tens of thousands of dollars worth of two Chinese stocks. But Ms. Tong's discount brokerage, Questrade Financial Group Inc., has declined to reimburse her for most of the loss, saying it didn't result from a breach of its system, writes Erica Alini.
Tax risk: Rental property owners should be aware of how the Canada Revenue Agency treats rentals to friends or relatives. As Tim Cestnick explains, a recent court decision highlights some potential red flags.
Tariff risk: Canadians have been bracing for price hikes from U.S. tariffs. While some things have gotten more expensive, Mariya Postelnyak reports, not all the price spikes have been as high as anticipated, and some prices have held steady or fallen.