The CSA's Client Focused Reforms � Where Art Thou?

The essence of the Client Focused Reforms (CFRs) is to require investment firms and advisors to put their clients' interests first, ahead of their own or their Firm's interests. The expected benefits of the Canadian Securities Administrators' (CSA) Client Focused Reforms for clients center on better investor protection and a more trustworthy, client-centric standard for investment advice. The CFR regulation was passed into law in late 2021. Nearly 4 years later, industry adoption is low.

In August 2023, the Canadian Securities Administrators reported that they reviewed 172 registered Firms to assess compliance with the CFR conflicts-of-interest requirements. The CSA's Client Focused Reforms mandate that Canadian financial registrants must identify, address, and disclose material conflicts-of-interest in the client's best interest, prioritizing client interests over the Firm's. This means Firms must actively manage conflicts like those that arise from proprietary products or incentive fees, use controls, and if unavoidable, avoid the conflict entirely, with disclosure serving as a last resort, not a solution.

Typical conflicts-of-interest include: Advice skewing incentive structures, commissions, supervisory pay; recommending the Firm's own proprietary investment products; payments for referring clients to other services and payments from product manufacturers (e.g. mutual funds) and Fee-based – such advisors are paid solely by the client (e.g. percentage of assets under management, hourly or flat fee), an arrangement designed to better align their interests with the client's - even this model has potential conflicts such as an incentive to increase assets under management. Sales Contests, sales quotas, bonuses, stock options and non-financial rewards (like Firm-sponsored travel or gifts) also motivate advisors to prioritize sales targets over client interests.

The Report observed the following common deficiencies:

Inadequate policies and procedures related to conflicts (66% of Firms reviewed);
Missing or incomplete disclosure related to material conflicts (53% of Firms reviewed);
Failure to identify one or more material conflicts (34% of Firms reviewed);
Inadequate controls to address certain material conflicts in the best interest of clients (28% of Firms reviewed);
Lack of or inadequate training on conflicts (17% of Firms reviewed)
A number of Firms failed to identify certain conflicts, assess them as material and/or implement sufficient controls.

Needless to say, the results were very disappointing.

In December 2025, the CSA and CIRO provided findings from their latest phase of Client Focused Reforms reviews (Know Your Client (KYC) and Know Your Product (KYP)). The findings were startling considering the length of time the Firms had to implement the changes. Some examples of non-compliance include:

Many Firms lacked an adequate process to collect sufficient information from clients about their risk tolerance and risk capacity, and to use that information to determine the client’s risk profile
Many Firms had not updated their suitability determination processes to ensure they are complying with their enhanced obligations under the CFRs
Many Firms lacked sufficient documentation to evidence the KYP assessments performed, including documenting the relevant aspects of the securities that were considered
Many Firms did not have an adequate monitoring process in place as they did not define what constitutes a significant change in a security and when it would trigger a reassessment of the security’s approval or suitability for clients holding the security
Many Firms failed to properly document periodic suitability reassessments or demonstrate that a full suitability review of the account and holdings had been conducted.
Many registrants did not document the suitability determination they had performed prior to proceeding with the client requested investment action.
Many Firms and registered individuals failed to perform or document KYP assessments on securities transferred in or resulting from client directed trades within a reasonable time.

Some registrants did not collect information about a client’s liquidity needs, despite its importance in assessing whether a portion of client assets might be required to pay for near term expenses. Some registrants failed to address discrepancies between the client’s risk profile and other KYC information such as financial circumstances, investment objectives, time horizon or age.

These material non-compliances are barriers to providing trustworthy investment advice. They are all management controllable.

These two sweeps, together with a OSC-CIRO Bank branch survey, OBSI complaint statistics and CIRO information provide powerful evidence that Firms have not been diligent in documenting or applying KYC requirements and thereby exposing clients to harm. The issues are widespread within the industry.

We conclude CFR is far from fully implemented and regulators are not demonstrating a sense of urgency to expedite compliance. Investors must be extra cautious in such an advice environment.

Questions To Ask Advisors:

1. On Firm Training: Have you received training on the practical application of CFR?
2. On Conflicts-of-Interest: Can you provide a specific example of a conflict of interest you or your Firm recently faced, and exactly how you resolved it in the client's best interest?
3. On Compensation: What is your compensation structure and potential conflicts-of-interest? Are there products you are incentivized to sell more than others?
4. On Fees: How does your Firm’s conflict-of-interest policy ensure that the lowest cost option is recommended? Will I be informed of a lower fee if I hit a price breakpoint?
5. On KYC/KYP Robustness: How often do you review and update my Know Your Client (KYC) information? What steps do you take to ensure you truly 'Know Your Product' (KYP) before recommending it, especially complex or new investments?
6. On Assessing Risk: What process do you use to determine my risk profile (tolerance and capacity)?
7. On Suitability Determination: Can you explain your process for determining suitability?
8. On Specialized Senior Needs: What specific experience or training do you have in managing the financial complexities unique to seniors, such as, RRSP management, estate planning or protection against elder financial abuse? What is your approach to designing portfolios and tax management for retirees?
9. On Performance: How have my investments performed compared to our agreed-upon benchmarks and my goals?
10. On Settling Complaints: How long does it take to settle a complaint? Do you use the opportunity cost loss calculation methodology in resolving complaints?

Self-Protection Actions You Can Take

Do not sign any blank or incomplete forms. Retain a copy of the completed KYC form. Don’t name your advisor as a beneficiary or executor of your estate.
Check all trade confirmation slips to ensure that they represent what you had authorized to be transacted. If you did not authorize the trade, that is a red flag.
Periodically ask for a copy of your KYC on file to ensure it is up to date.
Be sure to formally advise your advisor of any material changes in your profile - retirement, new job, death of a spouse, job loss, health issue.
Understand how your advisor interprets time horizon. Does it mean you are willing to hold a particular security for the long-term or does it mean the timeframe during which you are willing to stay invested?
When responding to a question on investing experience, be realistic. If you exaggerate, this could come back to harm you.
Assess if you have been placed in the correct type of account (commission or fee-based)
Scrutinize the Annual Fee and Performance Report.
If something doesn’t feel right, make an enquiry. If dissatisfied with the answer, file a complaint. If not satisfied with the response to the complaint, you can file your complaint with the independent Ombudsman for Banking Services and Investments (www.obsi.ca) at no cost.
Consider fiduciary advice - such advisors are legally obligated to put your interests ahead of their own.
Get a second opinion: If you are unsure about a recommendation, consider seeking a second opinion from a different, potentially fee-only, advisor.

It is extremely disappointing that after such an extended time, the investment industry still doesn’t have processes that are focussed on clients. While the CSA has provided still more guidelines to industry, there is no timeline for making the promise of CFR a reality. Until such time as the CFR rules are firmly embedded into a Firm’s business practices and culture, mis-selling risk is elevated. Control your financial destiny or someone else will. Caveat Emptor.

Ken Kivenko, President, Kenmar Associates