First Encounter with CIRO

The Canadian Investment Regulatory Organization (CIRO) began regulating all investment activities in Canada in early 2024 replacing two self-regulatory organizations. CIRO oversees

• investment products offered for sale and the companies which can offer them,
• how those products are marketed to the public, and
• the operational and control capabilities of companies offering those products or helping to market them.

CIRO has broad responsibilities and powers to back up their responsibilities! They are clearly a very important player in this market.

From their website, CIRO’s Vision is to “Be an agile and trusted regulator who helps the investment industry deliver the right financial outcomes for investors.” As documented in other articles on this site, previous regulators made changes which have provided significant benefit to the banks, but few benefits to investors. We have been hoping that CIRO would be different.

So how was my first encounter with CIRO?

Client Scenario

In September 2022, prior to the launch of CIRO, I was referred to a prospective client. She had been investing through the local branch of a big 5 bank, and had generated a total return of 2.5% annually for the previous 3 years. Her concern was that her money was going to run out quickly if she didn’t get better performance from her investments. I had just finished formalizing the 3-Plan investment model and described it to her. She liked the concept and decided to invest through me beginning in October.

The size of her investments did not qualify her for higher level treatment at the bank where all her money was in Portfolios and GICs.

Her portfolio WAS large enough that she qualified for a reduced commission rate from me. I charged her an average of 2.5%, implemented as 3% on the long-term and mid-term funds, and no commission on the short-term funds. As with all new clients, I talked with her monthly for the first three months. The timing of her long-term investments was especially fortunate. The market was positive and the funds selected were invested in what turned out to be market leaders.

The Result?

A year and 5 months after the account was opened, CIRO sent my company a note asking for an explanation as to why the client was charged 3% commission. Up to that point, the client had taken out 10% of the original capital. This withdrawal rate is in line with the annual 7% recommendation of the 3-Plan model. The mid-term and long-term funds had grown so that the total client portfolio was 130% of the original deposit, including recovering the original commission. The total return was almost 40% in 17 months. Remember that this client had made approximately 8% in 3 years at one of the big 5 banks! She was ecstatic!

But CIRO’s reaction? In essence, CIRO is saying that it’s okay to give clients poorly performing products. Just don’t charge a commission! Commissions are one time expenses. Return is every year for the lifetime of the investments. We can easily see that return is far more important than any one-time cost in looking out for the long-term financial interest of Canadians!

CIRO, you need the courage to fulfill your mission of helping Canadians achieve better financial futures. Focusing on one-time commissions will only make it impossible for independent advisors to develop the cashflow necessary to be able to stay in the business long-term! This will further reduce the options available to average Canadians, working directly against your mission!