New Investor Regulations are an Upgrade
August 30, 2021
Pending investor regulations are designed to ensure investments purchased are suitable, writes Peter Watson.
Investors will benefit from changes that will be implemented at the end of this year.
The central focus of new regulations is meant to ensure that investment products being recommended to you are consistent with your investment objectives and risk profile.
In simple terms, should you be buying this investment.
The starting point for any investment recommendation is the “Know Your Client” document. The person giving investment advice must understand your personal and financial situation.
Your advisor must understand your risk tolerance. How much investment risk is within your comfort zone? Now there is an additional consideration.
What is your financial ability to sustain a loss? For example, you might be willing to take a certain degree of investment risk, but you don’t have the financial ability to suffer a loss.
Question. What happens if there is an inconsistency in the way that you answer investment risk questions and how your advisor understands your circumstances?
In that case your advisor must have a conversation with you to discuss any discrepancy. This is significant because sometimes a standard investment questionnaire does not accurately reflect your true situation.
This information must be updated by your advisor every 36 months in most circumstances.
The updating requirement is reduced to 12 months if there are any changes to your financial situation or if the advisor manages your investment account on a discretionary basis.
Add in the reality that some investments pay a commission to the investment firm selling the investment. It is imperative that the investments you purchase are specifically appropriate to your needs.
In my opinion, these additional regulations are a great benefit to investors.
Investors circumstances must be fully understood. They must have the ability to purchase the most suitable investments.
Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.