The Difference Between an Investment Fiduciary and an Investment Dealer

Fiduciary investment and financial advisor shaking hands with client

The concept of a fiduciary is being discussed more in the media and among Canadian securities regulators, but really, why does it matter?

A fiduciary is someone acting in a position of trust on behalf of, or for the benefit of, a third party and as such, they are required to act in their best interest. Naturally, most Canadian investors assume this is the standard to which their investments are managed, but that isn’t the case.

Financial Advisors who are not considered fiduciaries are only held to a Suitability Requirement, which means that as long as an investment product is suitable, but not necessarily the best solution for the client their job is done.

As a result, it is not uncommon to see higher priced investments in client accounts (more profitable for the advisor and their employer) and/or those that are sponsored by the employer (a perceived, if not real conflict of interest).

How do you know if you are working with a fiduciary?
Only registered Portfolio Managers (typically with discretionary rights) are held to a fiduciary standard, while Mutual Fund Dealers, Investment Dealers (whether employed by a bank or an independent firm) and Financial Planners may not be held to this standard.

In a Consultation Paper published by the Canadian Securities Administrators (CSA Consultation Paper 33-403), the CSA states that acting in the best interest of the client means the fiduciary must ensure that:

  • Client interests are paramount;
  • Conflicts of interest are avoided;
  • Clients are not exploited;
  • Clients are provided with full disclosure; and
  • Services are performed reasonably prudently.

Wealth Stewards Inc. and its subsidiaries believe that with the rising complexity of wealth management issues in clients’ lives, that it’s time for clients and regulators to raise the bar and apply the fiduciary standards to all wealth management roles.

Are you familiar with what standards your financial advisor is held to? Perhaps consider whether they are obliged to act in your best interest or only to find a suitable product to sell you.

Portfolio Stewards Inc. is a registered Portfolio Manager and therefore obliged and proud to act as a fiduciary. To what standard is your financial advisor held?

All examples are for illustrative purposes only and are not intended to provide individual financial, investment, tax, legal or accounting advice. This material is for general information and is subject to change without notice. Every effort has been made to compile this material from a reliable source. However, we cannot guarantee that information will be accurate, complete and current at all times. Before acting on any of the above, please make sure to see a financial professional for advice based on your personal circumstances.

Back To Articles, Videos & Podcasts
Schedule an assessment with our team of experts