Non-tailored Advice in the Order Execution Only Channel

24-0367
Type: Administrative Bulletin >
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Comments Due By: February 26, 2025

Introduction

The Canadian Investment Regulatory Organization (CIRO) is evaluating the limitation of advice in the order execution only channel.

The do-it-yourself (DIY) investing segment is experiencing significant growth and evolution, with many investors new to DIY investing often relying on nontraditional sources of information and advice. According to the 2024 CIRO Investor Survey, published on June 4, 2024,  four in ten DIY investors opened their first DIY account within the last three years. The survey also revealed that DIY investors are considerably more likely than other investors to utilize social media, internet forums or financial influencers (Finfluencers) as sources of investing information and advice.

Consistent with CIRO’s strategic objective to enable greater access to advice forming part of the CIRO Strategic Plan FY 2025-2027 published on April 11, 2024  (the CIRO Strategic Plan), we are evaluating whether CIRO investment dealers offering order execution only account services (OEO Dealers) can provide non-tailored advice to meet the needs of DIY investors.

This initiative aims to ensure that such advice does not diminish the value of established, robust advisory channels, thereby preventing any potential confusion between the two. Our objective is to enhance investor protection by ensuring access to high-quality information from verified sources and allowing the use of tools designed to help investors make better investment decisions.

We are seeking input from stakeholders, including industry representatives, investor advocates and the public on the issues and potential solutions identified below as well as your responses to the questions set out at the end of this bulletin.

Following this preliminary stage, CIRO anticipates publishing proposals for revisions to Guidance Note 3400-21-003 Guidance on order execution only account services and activities (the OEO Guidance), initially published April 9, 2018,  and re-published with immaterial changes October 14, 2021. 

Any such proposals will be reviewed by the Canadian Securities Administrators (CSA) and will be subject to approval under CIRO governance procedures.

Issues

The OEO Guidance outlines the regulatory framework for OEO Dealers and specifies the tools that CIRO considers to be consistent with this framework. This regulatory framework is designed to ensure that clients of OEO Dealers make their own investment decisions without receiving any recommendations or suitability assessments from the OEO Dealer (Recommendation Prohibition).

The OEO Guidance currently contemplates OEO Dealers providing some communications and tools that have the potential to help their clients become more successful investors. Some OEO Dealers are implementing these measures to a limited extent while others feel constrained by some of the language in the OEO Guidance.

We share the view, as expressed in the OSC Business Plan published on April 29, 2024, that “There is an increasing consensus that the present limitations on advice being provided by OEO [order-execution-only] firms are preventing important information from being provided to do-it-yourself (DIY) investors who are increasingly seeking advice from unregistered channels, including social media platforms. Information that is shared online may be incomplete or misleading, and in some cases may not comply with securities laws. In addition, these limitations may impede the communication of important warnings to investors concerning products or services, including leveraged products, meme stocks, options trading and margin.”

Potential Solutions

In line with the CIRO Strategic Plan, which emphasizes enabling greater access to advice that meets the evolving needs of investors, we are committed to considering new policies that expand the advice options available to investors across CIRO-regulated firms. We believe that revising the OEO Guidance to clarify the range of alerts, proactive notifications, educational information, and self-help investing tools that OEO Dealers can provide, without contravening the Recommendation Prohibition, will help address these concerns.

To some extent, this would involve clarifying the intent of the OEO Guidance as it is currently written. For example, it is our view that nothing in the OEO Guidance is intended to suggest that providing clients with purely factual information or advice in the form of notifications “pushed” to them on a proactive basis is contrary to the Recommendation Prohibition, provided that such information or advice is not unique to an individual client’s personal circumstances or portfolio (non-tailored advice). Nonetheless, it is our understanding that some OEO Dealers are hesitant to do so due to perceived ambiguity in the guidance.

Our preliminary view is that significant changes to some of the terminology in the OEO Guidance are warranted, particularly concerning the meaning of “recommendation” within the context of the Recommendation Prohibition. For instance, the current emphasis on whether information provided by an OEO Dealer could reasonably be expected to “influence” an investor or might be “relevant” to their decision-making, and whether information is “pushed” or “pulled” to a client or group of clients, requires reconsideration. We believe the key distinction should be whether the advice is non-tailored and intended to assist clients in making better decisions for themselves. Additionally, we consider it beneficial to revisit the lists of examples of permitted tools to provide OEO Dealers with a reasonable degree of certainty regarding the regulatory intent of the revised guidance.

Finally, we are considering whether guidance on the positive uses of digital engagement practices and the avoidance of gamification and negative uses of digital engagement practices by OEO Dealers could be included in the revised guidance. However, it may be more appropriate for CIRO, in coordination with the CSA, to publish further work specifically addressing these issues.

Consultation Questions

Question #1 – Notifications and alerts
  1. Are there particular products or services in respect of which you think OEO Dealers should be encouraged to issue alerts or other proactive information?
  2. What consistent criteria could OEO Dealers use in choosing to issue alerts or other proactive information?
Question #2 – Self-help tools
  1. Specific tools. Are there any specific tools or services you believe should be included or excluded from the list of non-tailored advice?
  2. Model portfolios. The current guidance contemplates model portfolio tools that are “limited to class of investor, asset class, industry sector and/or time horizon.” Model portfolios that reference specific securities are not contemplated. Would you support allowing model portfolios that do reference specific securities, providing no recommendation is made by the OEO dealer based on client information?
  3. Self-assessment tools. The current guidance does not contemplate OEO dealers providing tools that help clients determine what class of investor they are. Would you support allowing OEO dealers to provide self-assessment tools?
  4. Filters. OEO Dealers provide their clients with tools for filtering the investments available on their platforms (e.g., large cap Canadian equities or TSX 60 index tracking ETFs). Would you impose limits on how specific such tools can be made (e.g., narrowing down large sets of investments such as those in the example above by price, performance or other criteria)?
  5. Combining tools. What is your opinion on the potential effects of combining tools of various kinds (e.g., if a client uses each of the following in succession: a self-assessment tool, an asset allocation tool, a securities filter and a rebalancing tool)?
  6. Limited client-specific information. Should there be greater allowance for the use of limited client-specific information that does not include a recommendation and is not based on KYC information? For example, in situations where a new client has funded their account but has not made any investments after a certain period, would it be appropriate to reach out with educational information about the benefits of investing some or all of their cash holdings?
Question #3 – Finfluencers

Some CIRO OEO Dealers have entered into referral arrangements with Finfluencers and in certain cases have integrated their trading platform with the third-party platform, (e.g. “Trade Now” functionality that provides the ability to trade directly through the third-party platform).

What are your views on this practice and to what level of initial due diligence and ongoing monitoring should be required on the part of the OEO Dealer?

Question #4 – Copy trading
  1. Should OEO Dealers be allowed to provide their clients with “copy trading” functionality that provides the ability to automatically replicate the trades of other investors?
  2. What measures can be implemented to ensure that copy trading is used in a way that is beneficial to investors?
Question #5 – Delivery of tools and information
Should the guidance distinguish information and tools provided directly on OEO Dealer websites or by email or made available through apps or social media sources?

How to Submit Comments

We welcome your general comments on this consultation and your responses to the specific questions. Please submit your comments in writing on or before February 26, 2025 to:

Member Regulation Policy
Canadian Investment Regulatory Organization
Suite 2600
40 Temperance Street
Toronto, Ontario M5H 0B4
e-mail: [email protected]

Commentators should be aware that a copy of their comment letter will be made publicly available on the CIRO website at www.ciro.ca

24-0367
Type: Administrative Bulletin >
Request for Comments
Distribute internally to
Legal and Compliance
Operations
Retail
Senior Management

Contact

Other Notices associated with this Enforcement Proceeding:

12/13/24

24-0367

Non-tailored Advice in the Order Execution Only Channel

Type
Request for Comments

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