Investor advocates and other industry voices have been calling for changes to help the growing number of DIY investors make smarter decisions.vgajic/iStockPhoto / Getty Images
After two consultations spanning more than a year, the Canadian Investment Regulatory Organization (CIRO) released its new guidance for non-tailored advice on self-directed investment platforms last week.
The new guidance allows order-execution-only dealers to provide more support to do-it-yourself (DIY) investors without violating the rule prohibiting investment recommendations.
Investor advocates and other industry voices have been calling for changes to help the growing number of DIY investors make smarter decisions. That’s, in part, to counter the proliferation of dubious advice widely available online.
Allowing tools such as alerts indicating it’s time to rebalance portfolios and flag when investors have significant leverage is a positive step for investor protection.
But the effect on advisors and product manufacturers could also be significant.
The new guidance allows OEO dealers to offer sample portfolios with asset allocations based on investor type (such as conservative or growth-oriented) or on investment themes or sectors. The portfolios won’t suggest specific securities; instead, dealers can provide filtering tools to help clients fill in the portfolios.
A report this week from TD Securities says these tools may end up influencing how asset managers design their products.
With exchange-traded fund (ETF) manufacturers already catering to DIY investors, the guidance “may subtly influence” the types of products that come to market, the report says.
The filtering tools can be designed to allow clients to review investments based on criteria such as cost, risk rating, assets under management and liquidity.
That may lead ETF issuers to build products around criteria likely to be used in an OEO dealer’s screener tool, “making clarity and quantitative factors more important for product success,” the TD Securities report stated.
Combined with alerts about overleveraged accounts and incoming total cost reporting rules, the result could be a positive nudge to develop products in investors’ best interests.
But the impact on advisors may be no less significant. As Luka Marjanovic, managing director and head of CIBC Investor’s Edge, wrote this week, self-directed platforms already provide sophisticated charting tools, risk and performance metrics and professional-grade equities research.
“As investors gain access to credible information and improved tools, a strict emphasis on security selection in an advisor’s practice is likely to wane,” he wrote.
Under the new guidance, investors can have their risk tolerance assessed, be presented with a sample portfolio, and receive alerts about when to rebalance.
That means advisors need to offer a lot more than investment management to remain useful to a growing cohort of potential and existing clients.
It also means learning to manage hybrid clients who manage some or all of their own investments but seek specific tax, estate, insurance or personal advice at specific moments.
In short, advisors need to focus on what the new guidance doesn’t allow: advice. Investors will have access to more and better information, which is a good thing. But it’s hardly a substitute for the personalized counsel advisors can offer at a critical moment in a client’s life.
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