The Portfolio Management Association of Canada (PMAC), through its Industry, Regulation & Tax Committee, is pleased to have the opportunity to provide comments on the Competition Bureau’s Public Consultation on the draft report of its market study concerning technology-led innovation in the Canadian financial services (FinTech) sector (the Report). Capitalized terms used in this letter but not defined here have the same meaning given to them in the Report.
PMAC represents over 240 investment management firms registered with the Canadian Securities Administrators (the CSA) to do business in Canada as portfolio managers. PMAC members encompass both large and small firms managing total assets in excess of $1.6 trillion. Our membership spans organizations ranging from private client firms, family offices, institutional client firms, and insurance and pension funds. Among our members are a number of on-line or “robo” advisers, firms who employ a more traditional model of asset management and also leverage a variety of aspects of FinTech as part of the services offered to clients, and those who do not employ FinTech as part of their client offerings or day-to-day operations.
GENERAL REPORT FEEDBACK
PMAC applauds the Canadian Competition Bureau (the Bureau) in undertaking this important and timely market study to help position Canadian regulation on technology-led innovation and emerging services in our financial sector to be robust, principles-based and able to respond to market innovation whilst protecting investors and preserving the integrity of our capital markets.
PMAC is supportive of efforts to provide policymakers with current information to strengthen Canada’s legislative system for the benefit of all investors and market participants. We believe that the Report is an important document and one that will assist legislators, regulators, and industry in mapping Canada’s approach to FinTech regulation.
We agree with the statement in the Report that there are economies of scale in compliance and that smaller entrants and market participants do not have the resources to establish the compliance teams of larger incumbents. This problem is technology-agnostic and is a real concern for the entirety of the industry where compliance obligations continue to increase in number and complexity and where there are concerns about Canadians’ ability to access and afford investment advice.
We believe that initiatives which preserve and foster investor choice in terms of investment, types of advice and the delivery of such advice best serve Canadians by providing a variety of options to help them meet their retirement and savings goals. PMAC’s mission statement is to advocate for the highest standard of unbiased portfolio management in the interest of the investors served by our members. Preserving a rich tapestry of portfolio management and other registrants with which investors can choose to invest – while allowing easy migration of so-called “traditional” to online advice models, if desired – is an important aspect of ensuring the vibrancy of the industry for the benefit of Canadian investors.
While PMAC is an advocate of investor choice, we simultaneously firmly believe in the importance of the quality of the registrant-client relationship and that the fiduciary duty owed by portfolio managers to their clients is the gold standard of care. To this end, we believe that the fiduciary standard is the duty of care that all Canadian investors should benefit from, regardless of the amount of investible assets they may have. On-line advice models, exemplified by “robo-advisers” – most of which are registered portfolio managers – represent an important opportunity for Canadians to access discretionary advice, often without a minimum investment amount. While we recognize that there is a segment of the Canadian population that may now or in future express a preference toward online investment management – whether in whole or in part – we caution that any amendments to existing regulations should not discount or ignore the need for traditional advice models (or traditional advice models that employ only certain aspects of FinTech in their service delivery) to continue to be plentiful, attractive and available at competitive costs. We would, however, like to stress that a focus purely on quantum of fees is not the correct lens through which to view value in portfolio management advice. There are a number of firms offering an extensive and complex variety of securities and services to their clients while others offer more streamlined options. Both of these are valuable to investors and advice should not be commoditized in the same way as other consumer offerings. Portfolio managers offer clients a variety of sophisticated ways to manage money and offer tailored client relations to ascertain client needs to help them meet their retirement and other savings goals. Portfolio managers have registered individuals with the highest levels of professional proficiency and offer a variety of investment solutions – from fixed income, to balanced, to equities, from private and public markets both in Canada or from other managers around the globe. To privilege FinTech over traditional models would do a grave disservice to many investors. We also believe that any measures which would favour or provide an advantage for FinTech firms over other models would not ultimately increase competition.
Using certain of the conclusions and recommendations in the Report, we have shared some comments for the Bureau’s consideration. The Report touches on many current regulatory and client-service issues and, as such, many of the comments from PMAC in the body of this letter have been made to the Federal government with respect to the proposed national Canadian securities regulator as well as to the various members of the CSA with respect to registrant regulation and investment funds. These comments bear reiteration in the context of the Report as we believe they reflect an important voice in this critical and overarching discussion about the future of securities regulation in Canada.