CIRO issues advisor incorporation proposal

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Hello and welcome everyone.

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Andrea, thank you for joining us here today.

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We're here today in studio because you have some very important updates on

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Ciro's latest advisor incorporation proposal.

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Why don't you take us through it?

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So exciting, thank you Jordan.

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Okay, so Ciro has issued a proposal, right?

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And if our advisors remember, they previously came out with

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sort of a discussion paper with three models being proposed for advisor

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corporation. Now they've come forward with one proposed model,

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which essentially would allow an advisor to operate through their

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corporation, earn their compensation through their personal corporation

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instead of earning compensation as, let's say, currently an

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employee or an agent, right?

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And the whole goal of this is to provide flexibility in compensation models

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for advisors so they can be compensated like other professionals, lawyers and

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doctors, and really achieve harmony across the industry because there's

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this longstanding issue where only mutual fund-dealing reps

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in certain provinces like Ontario could direct commissions

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to corporations, which is different than the model that they are currently

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proposing.

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Okay, so in your opinion, this is good news for advisors.

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This is positive.

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Absolutely. Very positive.

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To get into a little bit more detail about it, they're calling it the

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incorporated approved person.

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So advisor goes out there, they incorporate a corporation, right?

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And then they would have to be approved by CERO in a new

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category, a non-individual approved person.

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So this is a new Category created by Cero.

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They'd enter into an agreement with their dealer.

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The dealer has to support this model, but if the dealer doesn't support it,

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then they'll be at a competitive disadvantage.

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The agreement is with their deal and the corporation.

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So advisor, dealer, and corporation.

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Ciro has proposed that the advisor would be the only voting

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shareholder of this corporation.

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However, their family members could be non-voting shareholders of the

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corporation And so they're really trying to

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create a model that's going to be blessed by the tax regulators and

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then ultimately hopefully also blessed by security regulators as well.

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So Andrea, are the tax regulators onside?

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Fantastic question. So Ciro, very smart, filed an application with

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the CRA and the CRA came back and Ciro says they're pretty neutral about it.

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They in fact were pointing them towards cases online to inform

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how they construct this proposal.

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I think we'll see something like a professional corporation that exists today

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with lawyers and doctors, and that's how this model will work ultimately.

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Okay, and what is happening with the current model?

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Tell us about that.

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Yeah, so the Directed Commissions model, CRO has proposed for that to be phased

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out when the rules come into force.

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I think the transition period they proposed was 12 to 18 months.

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The Directed Commission model is used by certain advisors and it's still

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subject to tax scrutiny and not all revenue can be directed.

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And so they're coming out with a much more robust model that hopefully

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passes the muster of all regulators.

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Directed commissions model certainly does not do that.

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Okay, and the most important question, when is this all coming into place?

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That's the hitch. So in order for this to come into force, the CSA,

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the Canadian Securities Administrators, which is comprised of all the

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Provincial Securities Commissions, need to pass legislative amendments.

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And that will take quite a while.

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The legislative process, you know, is not something that happens overnight.

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And so after the consultation period ends in November,

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the hope there is that they can get some sort of consensus from all the

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provincial securities commissions so that the C.S.A.

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Can get on board and pass legislative amendments.

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Okay Andrea, well thank you for being here today and sharing your perspectives

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with all of us. Thank you.

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And for more regulatory updates and to access our CE credit portal, visit

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Fidelity.ca. Thank you for watching and see you next time.