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IIROC White Paper – Proficiency Upgrade and Directed Commissions
Letter Summary:
An obvious benefit to IIROC registrants for directed commissions may be the ability to direct fees for financial planning and other non-registrable activities directly to a holding company; we understand that currently many IIROC dealer members and their representatives working directly with financial planners may have to enter into other indirect payment arrangements. An area of particular concern to the CAC is the nature of activities generating the directed commissions, and the potential for certain persons (regulated and otherwise) to avoid regulatory oversight on what should be registrable activities. We are also concerned about the potential to minimize liability to possible client claims through the use of holding corporations. We do not believe that, absent a change in the commonly used structure for directed commissions by registrants as permitted by other SROs, that there is a compelling reason to permit them until such time as IIROC receives confirmation from both the tax authorities and all of the Canadian securities regulators that such usage is acceptable and does not result in a non-registrant performing and receiving compensation for registrable activities.
Overview of the Council’s Comments:
The potential benefits to IIROC-regulated investment dealers and their representatives of the directed benefit structure that have been espoused, including potentially creating a more tax efficient structure and facilitating succession planning, are not in our view sufficient to outweigh the potential negative implications, such as the impact on the legal liability to clients and the potential for increased conflicts of interest. It would be helpful to understand how other comparable jurisdictions, such as the U.S., the U.K. or Australia have considered or implemented a directed commission structure and, if so, the conclusions of any such research.