Client Communication in the Securities Industry

Working with Clients

• Securities industry regulations dictate what is permissible when contacting clients, including phone calls, electronic communication, sales literature, and advertising.
• Compliance with these rules, along with client knowledge and suitability assessments, is essential for a compliant career.
• Distributing materials to clients is considered registrable and must adhere to specific requirements.
• Written materials recommending specific securities are sales literature, requiring authorization before distribution.
• Internal materials should not be shared to clients without authorization.
• Rules govern the management and disclosure of conflicts of interest, personal dealings with clients, and the handling of client data.
• Compliance with registration category limits is essential as a registered employee.

Registration Requirements

• All registrants must adhere to strict regulations around communications with clients.
• Good communication skills, along with a compliant value proposition, are essential when dealing with clients.
• Individuals who trade or advise on securities in Canada must be approved and registered as dealing or advising representatives under National Instrument (NI) 31-103.
• Investment dealer representatives must be CIRO-approved before registering with provincial securities administrators as dealing representatives.
• The most common CIRO registration categories are Registered Representatives (RRs) and Investment Representatives (IRs).
• Registrants must notify CIRO of the customer type (retail or institutional) and the products they will trade.
• Employees in both categories must state the number of hours they work per week; if less than 30, they must explain why.
• Securities regulators in Canada impose requirements on registrants, and compliance is mandatory, and your registered status is your livelihood.
• Dealing representatives must adhere to SRO rules and provincial securities law, requiring observance of dealer member policies.
• Where registrant engages in another occupation, that occupation must not bring the securities industry into disrepute, disclosing all outside activities and obtain pre-approval from the dealer member.

Registered Representatives (RRs)

• An RR is permitted to advise on the full range of equity and fixed-income securities, and they need to be able to solicit orders for or to advise on trades with respect to options, futures contracts, and futures contract options.
• The RR role requires broad industry knowledge, including individual securities, capital markets, economic cycles, and taxation issues.
• RRs bridge the gap between order-takers and discretionary money managers and are often referred to as investment advisor or broker, but those terms are not official registration categories.
• Successful RRs typically have strong communication skills and a good understanding of the ethical decision-making process.
• Before recommending any products, registrants are subject to the Know Your Client (KYC) and Know Your Product requirements.
• To register as a new RR, you must meet the following formal training and proficiencies, most importantly successfully complete the Canadian Securities Course (CSC) and the Conduct and Practices Handbook Course (CPH).
• During the 90-day training period, RRs cannot contact customers or prospects for orders or advice, nor receive commission splits.
• Gathering client information on behalf of another RR, assisting with inquiries, and providing quotes are permitted.
• Sending introduction letters, inviting the public to seminars, and creating potential client lists is permitted with restrictions.
• After approval, RRs are under supervision for six months, unless previously approved for six months with an SRO member.
• Dealing with retail customers mandates the Wealth Management Essentials (WME) course within 30 months, that results in suspension otherwise.
• Additional proficiency is needed for options, futures, and futures option trading, which must have specific courses.

Portfolio and Associate Portfolio Managers

• Individuals managing accounts must be approved as Portfolio Managers (PMs) or Associate Portfolio Managers (APMs).
• Candidates must demonstrate relevant investment management experience (RIME).
• CIRO assesses RIME on a case-by-case basis, taking a holistic approach, and encourage unique, specific descriptions rather than boilerplate wording.

Investment Representatives (IRs)

• Investment Representatives are registered only to take or submit client orders for execution, as is the case provincially with NI 31-103, IRs are registered provincially as dealing representatives.

Sales Assistant

• Registered Sales Assistants are IR's employed at full-service investment dealers to assist one or more fully registered RRs in managing their business.
• Sales Assistants are restricted regarding permissible activities and are more involved with administrative tasks such as organizing the RR's client records, the account application, and other client documentation.
• Sales assistants may also take unsolicted orders from clients to buy and sell securities
• Sales Assistants may speak to clients and are recognized has having strong organizational and communications skills.
• This combination of skills allows sales assistants to multitask effectively and interrelate well with RRs, clients, and other departments.

Investment Representatives at Order Execution Only

• IRs in this role must recognize when an order is beyond their authority and pass it on to someone who is appropriately licensed or to a supervisor.

Restrictions on Non-Registered Staff

• Activities of assistants, managers, clerks restricted by SRO rules, they are not permitted to:
  • Open client accounts
  • Complete KYC information
  • Provide advice on securities
  • Solicit securities transactions

Registrant Restrictions

• Provide information on the status of a client's account status, balances, quotes, and other market information
• Contact the public by inviting the public to seminars and forwarding non-securities-specific information
• Receive completed account applications to forward to the dealer for approval
• Distribute account applications

The Fit and Proper Test

• CIRO conducts suitability reviews, known as the fit and proper test, for individuals seeking CIRO approval or registration under securities legislation.
• CIRO evaluates termination, regulatory, criminal, civil, or financial disclosures filed on the National Registration Database (NRD) and provides guidance on best hiring practices.

Continuing Education (CE)

• In addition to initial qualifications, participation in the industry's CE program is a condition of maintaining your licence.
• As an RR, your CE requirements consist of one or more approved programs every two years.
• If you have not completed the required courses at the end of the two-year cycle, your registration will be suspended, and your dealer member may have to pay a fine.

Communication with the Public

• Registrants must be aware of contact rules and CIRO's rules, and should also reflect how you can represent yourself to clients from a marketing and advertising perspective.
• The following communications have been specifically prohibited in many provinces:
  • No registrant is permitted to use another registrants name or signs unless he gives approval in writing
  • Registration certificates cannot be displayed, however course certification may be displayed.

Rules for Telemarketing and "Do Not Call Lists"

• Enforced by Canadian Radio-television and Telecommunications Commission (CRTC), and these laws establish guidelines on introductions times of day and record keeping.
• Before telemarketing you must subscribe and consult the National DNCL (Do not call list).

Canada's Anti-Spam Legislation (CASL)

• Enforced by CRTC, these laws establish similar regulations regarding electronic messages and require businesses to obtain express consent as well as an unsubscribe mechanism.

Rules for Marketing Materials

• Marketing, advertising, and related activities are considered to be subject to the view of CIRO and other regulations, as well, materials should present a balanced view of costs and benefits.

Electronic Advertising and Social Media Use

• Regulators have had to specifically address the use of electronic advertising and social media for marketing purposes.

General Regulations & Guidelines for Sales Literature

• Includes any commercials, commentaries or published material promoting a dealer members business.

The Fund Facts Document

• Contains 2 pages or more of key facts, with descriptions, rating, historical performance, and costs/fees.

Dealing with Clients

• To deal with your clients in a professional manner, you must be aware of the rules regarding conflicts of interest, personal dealings with clients, and proper handling of client data.

Conflicts of Interest

• Requires registered firms and individuals to identify, address, and disclose any conflict to the clients and address what could be done.

Personal Financial Dealings and Outside Activities

• CIRO has rules that deal with engaging in personal financial dealings with clients/outside activities and carrying accounts with other dealer members.

Privacy and Cybersecurity

• The Personal Information Protection and Electronic Documents Act (PIPEDA) sets out the rules for the collection, use, or disclosure of personal information

Understanding and adhering to securities industry regulations is crucial for compliant client communication. This includes rules for phone calls, electronic communication, and sales literature. Proper handling of client data and conflict of interest management are also essential.