IFIC’s Own Best Interests Submission–the death of a model(?)

Submissions like this are designed to lead you away from the heart of the matter, to confuse and to obfuscate, but, if you look deep enough, they ultimately draw you back to arguments against their own case. 

From what I can see, the IFIC’s main defense is that the “duty to act fairly, honestly and in good faith within a system of detailed rules….” and the existing “duty of care” already provide a sufficient framework for investor protection.

This would be fine, if all parties were aware of and able to operate within a parameter to parameter transaction framework that is working properly with full transparency, and where implied and express contracts agreed were in keeping with this framework, and if not were enforced and upheld.   But this is not the case.  In fact, it is a duty “”to deal”….”, and not unfortunately to “advise”.

Subsection 2.1(2) of OSC Rule 31-505 Conditions of Registration states that a registered representative of a registered dealer shall deal fairly, honestly and in good faith with his or her clients.

Low suitability standards that are incapable of delivering the implied contracts and conflicts of interest that impair the operation of even these limited minimum standards prevent the duty to “deal fairly, honestly and in good faith” from operating as an effective investor protection mechanism.

The industry is not dealing “fairly, honestly and in good faith”: the contract is different and it is doing everything in its power to hide its true nature and the relationship from the investor, in order to keep those minimum standards and those conflicts of interest.

This is why best interest standards and fiduciary type duties are being introduced worldwide.  And in Canada, in particular, minimum transaction standards and conflicts of interest are impairing the ability of existing common law protections to protect the investor.  

If the industry were truly to be held accountable to its supposed duty to act in “good faith”, it should be made to honour it.  By recognising the fact that the retail industry has moved from the transaction to the advice, regulators are looking to introduce statutory duties that add to and enforce existing duties.  

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Please note the following taken from: THE IMPLIED TERM OF GOOD FAITH AND FAIR DEALING: RECENT DEVELOPMENTS, The Canandian Bar Review, 2007, Volume 86.

The Supreme Court of Canada in Wallace v. United Grain Growers acknowledged that “[t]he obligation of good faith and fair dealing is incapable of precise definition ….“

While courts have discussed what good faith might entail, Canadian jurisprudence has not produced a comprehensive, authoritative account of when the good faith term will be implied into the relevant contract. As the Ontario Court of Appeal noted in 2003 in the case of Transamerica Life Canada Inc. v. ING Canada Inc:

courts impose the good faith standard because the kind of contract or relationship being considered brings with it an inherent and therefore a reasonably predictable vulnerability in one party. This vulnerability is present at the time of contract, and this leads the courts to ensure that good faith is implied to balance out the unequal power of the parties. Once implied, the good faith term will technically restrain both parties – but practically speaking, only the dominant party’s behaviour is likely to be contested.

And the Ontario Court of Appeal in Transamerica made a similar comment:….. Rather, courts have implied a duty of good faith with a view to securing the performance and enforcement of the contract made by the parties, or as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into

In TSPIntl, Wilson J. stated: It appears from the review of the case law that two categories of cases emerge when the duty of good faith applies in the execution [or performance] of a contract. First, the court will impose the duty of good faith as an interpretative tool regardless of the specific terms of a contract, when there is inherent vulnerability or a power imbalance in the contracting parties’ relationship. …This power imbalance exists at the time the contract is formed, and the weaker party is characteristically not able to achieve more favourable contractual terms. The power imbalance continues to affect the contractual relationship during its execution. The presence of a power imbalance or inherent vulnerability is a factual issue that must be determined in each case.

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