Getting investment adviser to listen and respond to your responsible investment needs

Getting financial advisers to listen and respond to your responsible investment needs

Has your financial adviser asked you about your values or ethics when helping you to find the investment options that are most suitable for your needs? Have you found financial advisers to be knowledgeable about sustainable, responsible or impact investing enough to be able to help you find investments that are compatible with your expectations? At Ethiquette, we’re doing our best to get financial advisers to listen and respond to your responsible investment needs.

On September 27, 2016, Ethiquette submitted a series of recommendations to the Canadian Securities Administrators (CSA) consultation on Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives toward their Clients.

Ethiquette’s comments relate to your rights to have the information necessary to judge the appropriateness of an investment strategy and product. This within the context of a growing demand for, and supply of self-declared responsible, green and impact investment products.

In our recommendations, we referred to the securities administrators in France (AMF France) who published a paper declaring :

“If it is not for the AMF to say which investment is responsible or not, it is fundamental that the investor has the necessary and sufficient information to judge the compatibility of the proposed strategy with the SRI investment he wants to achieve. Assuring clear, accurate and not misleading information is central to the AMF mission, and it is entirely legitimate that the Authority speak in this debate.” [1]

In the context of this Canadian consultation, Ethiquette underlined that it is not the role of the adviser, dealer or representative to say which investment product is responsible or not, but as agents regulated by the securities administrators, it is the role of advisers to understand both the consumers’ wants, and the market offering in order to be able to judge the compatibility, and guide clients appropriately.

Below, the Ethiquette recommendations follow a brief description of potential guidance put forward in the consultative document by the CSA, and a recapitulation of the consultation questions that the Ethiquette recommendations address.

Description of Potential Guidance — Know Your Client

When you first meet with an adviser, and intermittently throughout your relationship with an adviser, you are asked to complete a form referred to as the KYC (Know Your Client). This is a mandatory procedure for advisers to help them better understand your financial needs and tolerance for risk.

In the CSA paper seeking consultation, this potential guidance is put forward (Appendix B in the document):

…«To meet their KYC obligation, firms and representatives must take reasonable steps to obtain sufficient information about their clients’ investment needs and objectives, including the client’s time horizon for their investments and applicable investment constraints and preferences, for example socially responsible investing and religious constraints»

Consultation questions specific to this potential guidance were:

55) To what extent should a representative be allowed to open a new client account or move forward with a securities transaction if he or she is missing some or all of the client’s KYC information? Should there be certain minimum elements of the KYC information that must be provided by the client without which a representative cannot open an account or process a securities transaction?

57) Are there circumstances where it may be appropriate for a representative to collect less detailed KYC information? If so, should there be additional guidance about whether more or less detailed KYC information may need to be collected, depending on the context?

Ethiquette recommendations :

According to the research cited in the report[2], very few firms validate KYC questionnaires in some manner and only 16% of questionnaires are considered fit for purpose. Also in the proposed potential guidance (Appendix B), it is recommended that constraints and preferences, such as socially responsible investment and religious constraints, should be taken into consideration by representatives. Consequently, Ethiquette recommends the following:

  • Questions related to consumer preferences and constraints be explicitly included in KYC questionnaires. Given the fact that an increasing number of consumers are concerned with global risks such as global warming and global supply chain, responsible investment mandated funds can provide a complementary risk management to long-term shareholder and stakeholder value;
  • Questions related to preferences be included in the minimum KYC required for account opening, and should be considered a prerequisite to the consumer risk profile assessment;
  • KYC questionnaire validation by a third party be included as an explicit requirement in the future guidance;
  • If the approved product list of the adviser, fund dealer or investment representative contains no suitable funds according to the consumer preferences and constraints, the consumer has the right to be informed. The product offer must be determined principally by the consumer KYC and not by what products can be offered by the firm.


Description of Potential Guidance — Know Your Product

In the CSA paper seeking consultation, this potential guidance is put forward with respect to advisers knowing the investment products that are out there (Appendix C in the document):

…« In order to comply with their KYP obligation, representatives must:

  • understand the specific structure, features, product strategy, costs and risks of each product their firm trades or advises on, including an understanding of how the products compare to each other;
  • understand the specific structure, features, product strategy, costs and risks of each product that they recommend or that their client purchases or sells; and
  • understand the impact of all fees, costs and charges connected to the product, the client’s account and the investment strategy»

 Consultation questions specific to this potential guidance were:

58) Should we explicitly allow firms that do not have a product list to create a product review procedure instead of a shelf or would it be preferable to require such firms to create a product list?

59) Would additional guidance with respect to conducting a “fair and unbiased market investigation” be helpful or appreciated? If so, please provide any substantive suggestions you have in this regard.


Ethiquette Recommendations :

Despite that fact that responsible investment is undeniably on the rise in the retail market[3], and given the fact that no specific training on responsible investment strategies or products is currently required by advisers, dealers or representatives; it may be challenging to establish review procedures for such products in order to include them in a product list. It is noteworthy that the responsible investment product offering is very diversified and rarely homogeneous (drawing from multiple paradigms that underlie the concept of socially responsible investing).

Ethiquette recommends:

  • That responsible investment be a required part of the core, basic training all advisers, dealers and representatives receive;
  • That ongoing continuing education training on responsible investment be required to keep up with this rapidly evolving market;
  • That all training on sustainable, responsible and impact investment be independent third party training (no ties with funds providers) and be required for all advisers, dealers and representatives in order to enable a fair market investigation.

Do you agree that the recommendations that Ethiquette puts forth would help in getting financial advisers to listen and respond to your responsible investment needs? Please enter any comments in the comment box below.




[1] Free translation from

[2]  OSC Investor Advisory Panel Report (2015)

[3] The Responsible Investment Association’s 2015 Trends report indicates that between 2011 and 2013, the assets under management in retail responsible investment funds grew by 52.3% while the mutual fund industry as a whole grew by only 29.8%.

April 2016 Ipsos Reid study (>1,000 Canadians) entitled Millenials, women and the future of SRI found :

  • Millenials were 65% more likely than babyboomers (age 55+) to consider environmental, social and governance (ESG) factors when making investment decisions;
  • Millenials were almost twice as likely as boomers to 
believe that companies with good social and environment practices are better long-term investments;
  • 82% of millennials, 74% of university grads and 60% 
of all Canadians believe RI will become even more important in the next five years.


  1. Thanks for doing this.

    I worry that the KYP obligations will force Dealers to drastically reduce their product shelf eliminating many of the smaller fund codes / fund companies. This would no doubt reduce or eliminate the SRI mutual fund offerings.

    It seem contradictory that the KYC obligations may open the door for a discussion on SRI, while the KYP obligations may have the effect of eliminating all the products to satisfy that need.

  2. I understand your concern, and hope that you’ll voice it directly to the CSA. We believe that the current system already favours larger funds (generally not the SRI funds) that have more resources to incentivize investment advisers, and understand that the proposed KYP obligations will not remove, and may even further disadvantage SRI funds. The KYP obligations can, however, level the playing field, perhaps by setting limits/parameters on benefits offered by fund companies to advisers, and then most certainly by requiring independent training for advisers on SRI.

  3. I have also submitted my comments to the CSA.

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