CIRO's new proposal could reshape advisor pay and expand access to regulated financial advice
A major shift in advisor compensation may be on the horizon.
The Canadian Investment Regulatory Organization (CIRO) is advancing its proposal to allow incorporated advisor compensation.
This move is expected to harmonize and modernize how investment and mutual fund dealer advisors are paid.
According to Alexandra Williams, senior vice-president, Strategy, Innovation, and Stakeholder Protection at CIRO, the proposal also aims to enhance investor protection and improve access to regulated advice.
Currently, compensation structures for advisors differ depending on whether they are sponsored by investment dealers or mutual fund dealers.
As reported by CIRO, investment dealer advisors are compensated directly as employees or agents, while mutual fund dealer advisors may, under certain conditions, have a portion of their compensation paid to a personal corporation for activities performed on behalf of the dealer.
The proposed changes seek to align these models, making it more financially viable for advisors to enter or remain in the profession, and ensuring consistency in regulatory oversight across the industry.
The proposal, as detailed by CIRO, would restrict the use of personal corporations to client-facing Approved Persons, require CIRO approval of advisor corporations under a new “Incorporated Approved Person” category, and limit voting ownership to individual advisors and their immediate families.
A written agreement would also be required between the dealer, the advisor corporation, and the individual advisors, clearly outlining each party’s obligations and ensuring robust supervision by the dealer.
CIRO has submitted its proposal to the Canada Revenue Agency (CRA) for review, focusing on tax considerations and seeking feedback to finalize the rule amendments.
The next steps include receiving CRA responses, publishing the proposed amendments for public comment, and seeking approval from the Canadian Securities Administrators (CSA).
Implementation will follow, with a transition period for dealers and advisors, as per CIRO’s update.
Williams highlights that harmonizing compensation options demonstrates CIRO’s commitment to efficient and consistent regulation.
She explains that adopting the incorporated advisor compensation option would “enhance investor protection by promoting greater investor access to regulated advice and ensuring that advisor corporations are subject to robust regulatory oversight by CIRO.”
