Consumer advocate addresses rhetoric around advisor incorporation
CIRO’s latest move to “harmonize” advisor compensation by enabling advisors to route income through personal corporations is being sold as modernization that will “boost investor protection.” That framing is, at best, wishful. At worst, it is disingenuous. The initiative is fundamentally about advisor pay structure—not about strengthening outcomes for clients. If investor protection is the banner, the rule needs far more than a new corporate wrapper around compensation.
What CIRO is actually proposing
CIRO’s own materials are clear: this project sits inside its strategic plan to level the compensation playing field across the investment-dealer and mutual-fund-dealer channels. Earlier, CIRO canvassed three options and signalled a preference for creating an “Incorporated Approved Person” category. It has now moved to develop draft rules (subject to CSA approval) and is seeking input from the Canada Revenue Agency on tax questions. None of that is, in itself, a consumer-protection program. It is a payment-plumbing exercise.
Why “incorporated pay” can cut against investors
Incentives and conflicts. Introducing a corporate vehicle can heighten pressure to grow gross production to cover overhead and exploit tax planning. That risk sits squarely in the Client Focused Reforms’ conflict framework, which requires dealers and representatives to put clients’ interests first and to manage and disclose material conflicts. Changing the routing of pay does not soften those conflicts; if anything, it can intensify them.
Supervision and accountability. Supervising an individual Approved Person is different from supervising a corporation controlled by that person. CIRO suggests it would maintain jurisdiction over activity within the corporation via the new category. That is a promise of oversight, not evidence of effective accountability. Unless the rules mandate full look-through access to books and records, clear liability at the dealer level, and unambiguous restitution pathways, investors will face more hurdles when problems arise.
Transparency. Most investors already struggle to understand how their advisor is paid. Interposing a corporation between dealer and representative adds opacity unless the rule compels standardized, plain-language disclosures that map who pays whom, for what, and how that pay can influence recommendations. Neither the update notices nor the early coverage prioritize this client-facing transparency.
Cost pass-through. Standing up, approving, and monitoring thousands of advisor corporations is not free. Compliance architecture has a habit of flowing through to clients—directly via fees or indirectly via product-shelf bias toward higher margins. Before “harmonization” is blessed, investors deserve a credible cost–benefit analysis that isolates client impacts rather than operational convenience.
The bar for claiming “investor protection” is higher than this
If a regulator or an SRO wants to attach an investor-protection label to a compensation reform, the minimum standard should be evidence that investor outcomes will improve—lower all-in costs, cleaner shelves, fewer suitability breaches, faster redress, and reduced complaint volumes. CIRO and the CSA have, to their credit, underscored the primacy of conflict management under the CFRs and the obligation to put clients first. That standard should drive this file as well. Harmonizing the form of pay, without tightening the outcomes that clients experience, does not meet that bar.
What would make this credible for investors
If CIRO proceeds, several investor-centric conditions would move this from pay architecture to a defensible policy:
- Dealer-level accountability that cannot be ducked. The dealer remains fully on the hook for conduct routed through an advisor corporation. The rule text should spell out liability, not imply it. Books-and-records and compensation-flow look-through must be explicit.
- Standardized, plain-language disclosure. A one-page, client-facing disclosure at account opening—and on any change in compensation structure—covering: the pay chain; potential conflicts created; and how those conflicts are managed and monitored. This aligns with the CFRs’ requirement to disclose material conflicts in a way a reasonable client can actually understand.
- Redress that stays simple. One front door for complaints and restitution. No “that’s the corporation’s issue” detours. CIRO’s rule-consolidation work has already emphasized putting the client’s interests first in conflict management; this file should reflect that same priority in practice.
- A real impact assessment with investor metrics. Publish an ex-ante assessment of expected effects on client cost, suitability outcomes, complaint rates, and product-mix dispersion by risk profile—then commit to public, post-implementation reporting against those measures with a timeline for course correction if the data disappoints.
- Call things by their proper names
There is nothing inherently wrong with updating compensation plumbing to reflect corporate-form realities across channels. But calling this “investor protection” without the safeguards above muddies the conversation and risks normalizing form-over-substance policymaking. The CSA and CIRO have spent years elevating conflict management expectations under the CFRs. This is the moment to prove that the same discipline applies when the change primarily benefits advisors’ after-tax economics.
Investors do not need a new corporate shell around the old incentives. They need clear accountability, visible disclosures, easy redress, and measurable outcome gains. Until the rule set delivers those, let us stop pretending a pay-structure harmonization is a consumer-protection win.
Harvey Naglie is a Toronto-based consumer advocate and policy advisor. He is a former senior policy advisor in the Ontario Finance Ministry and currently teaches at McMaster’s Directors College.
