Who Is Watching Over Your Money? What an Independent Dealer and CIRO Do to Keep You Safe

Most people meet one person when they invest: their advisor. What they rarely see is the structure behind that person. In Canada, an advisor who sells mutual funds cannot simply work alone. They must be registered through a dealer firm, and that firm is responsible for supervising them. Compliance may sound like paperwork, but it is one of the main things standing between your savings and a costly mistake or an outright fraud.

Who Does What

Who	Their role
Your advisor	Works with you directly. Registered to deal in specific products, through one dealer.
The dealer	The firm your advisor is registered with. It is responsible for supervising the advisor and every account.
CIRO	The Canadian Investment Regulatory Organization, the national self-regulatory body for investment dealers and mutual fund dealers. It sets rules, reviews firms and disciplines those who break the rules.
Securities commissions	Provincial regulators, such as the Alberta Securities Commission, which register firms and individuals and oversee CIRO.
FINTRAC	Canada’s financial intelligence agency, which enforces the anti-money laundering rules.
CIPF	The Canadian Investor Protection Fund, which protects client property if a CIRO member firm becomes insolvent.
OBSI	The Ombudsman for Banking Services and Investments, a free, independent service for resolving complaints.

What a Dealer Is Responsible For

Much of this work is invisible to clients, which is rather the point. Here is what happens in the background.

Registering and Vetting Advisors

Before an advisor can work with clients, the dealer sponsors their registration with the securities commission in each province where they have clients. That includes confirming their education and proficiency, checking their background, and making sure the registration stays current. New advisors are placed under closer supervision at first. Advisors must also disclose, and the dealer must review, any outside business activities that could create a conflict.

Agreements With Fund Companies

An advisor cannot simply buy any fund for you. The dealer sets up the contracts with each fund company, and then reviews which products may be offered on its platform. This is known as product due diligence. Under Canadian rules, firms must understand what they offer, including its risks, costs and features, before it reaches a client.

Reviewing the Paperwork

Compliance staff review new account forms and transactions, checking that the details are complete and consistent. Does the risk rating of the investment fit the risk tolerance on the form? Does the time horizon match the goal? Do your income and net worth make sense with what you are investing? A mismatch gets flagged and must be explained or corrected. Know Your Client information must also be kept up to date.

Auditing Advisors

Dealers carry out regular compliance reviews of their advisors and branches, looking through client files, trades, correspondence and fees. Those reviews are in addition to the regular reviews CIRO carries out on the dealers themselves.

Putting Your Interest First

Canada’s Client Focused Reforms set out what firms and advisors owe you. In short, they must know you, know the product, make suitability decisions that put your interest first, and address material conflicts of interest in your best interest. A dealer needs policies, training and supervision to make sure that happens in practice.

Stopping Money Laundering

Dealers are legally required to run an anti-money laundering program under federal law, overseen by FINTRAC. This is why you are asked for government ID, why you may be asked where your money came from, and why you may be asked who really owns or controls a company or trust account. Those questions are not personal.

• Verifying identity of clients, and of those who control corporate or trust accounts.
• Reporting suspicious transactions, and large cash transactions of $10,000 or more, to FINTRAC.
• Checking against lists of sanctioned persons and terrorist groups.
• Keeping records and training staff, under a written compliance program.

Keeping Your Money Separate

Your investments are generally held in your name with the fund company, or with a custodian or in a trust account, and not by your advisor personally. Cheques should be made out to the firm or fund company as your account documents direct, never to the advisor personally.

Protecting Older and Vulnerable Clients

Firms must take reasonable steps to ask for a trusted contact person, someone they can call if they are worried about you or cannot reach you. If there is reason to believe a vulnerable client is being financially exploited, a firm may place a temporary hold on a transaction. This is a practical protection for people facing scams, or pressure from someone close to them.

Everything Else

• Reporting to you: account statements, plus annual reports on your charges and your investment performance.
• Handling complaints: a firm must acknowledge a complaint and investigate it within set timelines.
• Reviewing marketing: websites, advertising and articles such as this one are subject to the dealer’s review.
• Protecting your privacy: safeguarding your personal information and guarding against cyber threats.
• Staying solvent: meeting financial requirements, carrying insurance, and having plans for a business disruption.

The Value of an Independent Dealer

An independent dealer follows the same rules as every other dealer. The difference is who owns it, and what that means for choice.

• A wider shelf. With agreements across many fund companies, an advisor is not limited to one firm’s products.
• Fewer built-in conflicts. An independent dealer is not owned by a fund company or a bank that needs its own products sold.
• A second set of eyes that is separate from the advisor. The compliance team reviews the work and has its own reporting duties to regulators.
• Stability for you. If an advisor leaves, retires or becomes ill, there is a firm with duties to its clients, and records of your accounts.

Independent does not mean unsupervised. It means the supervision comes without the pressure of selling one company’s products.

What Happens If Something Goes Wrong

If you have a complaint. Start in writing with the firm. It must acknowledge the complaint within five business days and generally give you a final response within 90 days. If you are not satisfied, or do not hear back, you can take it to OBSI at no cost, generally within 180 days of the firm’s response. You can also report concerns about conduct directly to CIRO.

If the firm fails. CIPF protects client property held by a CIRO member firm that becomes insolvent. Coverage is up to $1 million for general accounts combined, $1 million for registered retirement accounts combined, and $1 million for RESPs combined.

How to Check for Yourself

• Search your advisor on the National Registration Search at aretheyregistered.ca. It shows whether the person and the firm are registered, and for what.
• Look up discipline history on the CIRO website.
• Read your statements. They should come from the firm or fund company, not from a spreadsheet prepared by your advisor.
• Check the name on your cheques. It should not be the advisor’s own name or personal company.

Be careful if anyone promises guaranteed high returns, asks you to keep an investment secret, pressures you to act today, or offers something "off the books" that is not on your statements.

Where to Start

Take five minutes to look up your advisor, and check that your statements come directly from the firm. A trustworthy advisor will welcome the question. It is one of the easiest things you can do to protect yourself, and the people who do it are the ones least likely to be taken advantage of.

This article is general information only and is not legal advice. Rules, limits and timelines may change, and they vary by province and by type of firm. Coverage details are set by CIPF.