Securities Industry: Working with Clients

Working with Clients in the Securities Industry

• This chapter explains dealer member employee registration categories, including proficiency needs and permitted actions for Registered Representatives, Investment Representatives, Portfolio Managers, and Associate Portfolio Managers.
• Regulatory requirements and guidelines for client communications, marketing, and advertising are examined.
• Rules on conflicts of interest, personal relationships with clients, and client data handling are discussed.

Registration Importance

• The securities sector is heavily regulated, setting constraints on client interactions, including phone and electronic communication, and advertising material distribution.
• Grasping the rules for communicating with clients is crucial for regulatory compliance.
• This is in addition to business conduct standards, such as understanding your client and ensuring recommendations are suitable.

Distributing Materials

• Distributing materials to clients is considered a registrable activity and needs careful execution in line with securities regulations.
• Written materials recommending a specific security are sales literature and need proper approval before distribution .
• Employees are not to share dealer-provided materials about securities with clients without permission.
• Internal-use materials aren't intended for customers or any convenience-based disclosure.

Mutual Funds Info

• Exercise care with information concerning mutual funds, to comply with the detailed legislation on what must be in mutual fund sales literature.
• Distribute fund performance data only if authorized by someone familiar with regulatory disclosure requirements.

Conflicts of Interest

• Compliance with regulations and registration category boundaries is key, regarding conflict-of-interest management, client interactions, and data handling.
• Chapter topics include licensing importance, communication rules and regulations, and an understanding of category-specific permitted activities.

Registered Representative Expectations

• All registrants face stringent communication regulations.
• Communicating effectively with existing and potential clients as a dealer member employee is critical.
• A clearly articulated value proposition delivered compliantly is important, especially with tighter rules.

National Instrument 31-103

• NI 31-103 mandates approval and registration for individuals trading securities or advising on buying/selling in Canada as either:
  • Dealing representatives
  • Advising representatives
• The chosen category depends on the firm.
• For example, Investment Industry Regulatory Organization of Canada (CIRO) investment dealer representatives need CIRO approval before provincial securities administrator registration as dealing representatives.

Common CIRO Registration Categories

• Registered Representatives (RRs)
• Investment Representatives (IRs).
• Both must register in the client's location and inform CIRO of customer type (retail/institutional) and the products traded.
• Full-time employment is not required, but employees must state their work hours, explaining if under 30 hours weekly.

Regulatory Bodies

• Securities regulators often impose rigorous registrant requirements, similar to those in medicine and law.
• Compliance is a must, even without understanding the rule rationale.
• Remember that registration is a work privilege, demanding adherence to its conditions.

CIRO Member Firms

• Dealing representatives of CIRO firms must follow SRO rules and relevant provincial law.
• Dealer members may allow employee outside activities if provincial regulators permit.
• Registrants must follow dealer member policies, which may restrict outside activities.
• In a policy-rule disagreement, the stricter one prevails.

CIRO Rules

• CIRO rules demand disclosure and pre-approval from dealer members for any registrant occupation that could discredit securities.

Proficiency Requirements

• Provincial securities administrators and CIRO have requirements for RR and IR proficiency, covering education, experience, supervision periods, and proficiency validity times.

Registered Representatives' Abilities

• Registered Representatives can advise on equity and fixed-income securities.
• Additional abilities include soliciting orders or advising on options, futures, and futures contract options if RR proficiency requirements have been met.
• RRs are informally called investment advisors or brokers.
• Broad industry knowledge of individual securities, capital markets, economic cycles, security performance, and taxation is vital for RRs.
• This knowledge enables investment advice and bridging the gap.
• RRs can offer full-service dealers' products, unlike registered dealing representatives selling mutual funds only.
• Successful RRs have strong communication skills and ethical decision-making abilities.

Becoming a Registered Representative

• New Registered Representatives must meet specific requirements to registe.
• Formal training and proficiencies must occur through successful completion of Canadian Securities Course (CSC) and Conduct and Practices Handbook Course (CPH), via Canadian Securities Institute (CSI).
• The 90-day period of restricted client contact involves no customer contact for obtaining, taking, or soliciting orders for securities or advising on trades in securities.
• Restrictions also apply to electronic platforms and social media, while also prohibiting commission splits as compensation.

90-Day Period Restrictions

• Permitted activities during the 90-day period of restrictions include:
  • Gathering information on behalf of another RR
  • Assisting clients with inquiries and quotes
  • Sending out introduction letters and forwarding non-securities information, provided some restrictions are observed
  • Creating and researching lists of potential clients for future follow-up work.

Additional Requirements

• 6-month supervision period required following RR approval, unless the RR/IR was previously approved for six months with a member of a self-regulatory organization (SRO) or a recognized foreign SRO.
• The 30-month requirement to deal with retail customers involved complete Wealth Management Essentials (WME) course within 30 months after being approved.
• Immediate suspension will come from failure to promptly deal with retail customers.
• Continuing Education (CE) participation and additional proficiency is also required.
• Participation in the industry's CE program is a condition of maintaining a RR license.
• To deal in options trading, complete the Derivatives Fundamentals and Options Licensing Course or the Derivatives Fundamentals Course (DFC) and the Options Licensing Course (OLC).
• To deal in futures and futures options, complete the DFC and the Futures Licensing Course.

Portfolio and Associate Portfolio Managers

• Full-service dealers have shifted toward delivering holistic wealth management for high-net-worth clients over the years.
• Discretionary portfolio management has led to rapid advisor-managed account growth.
• Portfolio Managers (PMs) or Associate Portfolio Managers (APMs) need industry and course proficiencies, plus a high level of demonstrated experience clearly relevant to discretionary portfolio management activities (RIME - Relevant Investment Management Experience)
• Strong skills are important regarding research and analysis and portfolio construction.

Ciro Approach

• CIRO assesses RIME for PM/APM approval through;
  • Assessing each exemption application for its merits case-by-case
  • Taking a holistic review approach not disqualifying an applicant.
  • Including specific, relevant descriptions in their case, rather than boilerplate.

PM Registration Requirements

• To be a PM, one must complete the following courses and requirements:
  • CPH and Canadian Investment Manager designation, or Chartered Investment Manager (CIM) designation, or Chartered Financial Analyst (CFA) Charter.
  • Complete four years of RIME, if the Canadian Investment Manager designation or CIM is completed, with one year gained within three years before requesting approval acceptable to the CIRO.
  • CFA Charter completion requires one year of RIME within three years before the Ciro-approved request.

APM Registration Requirements

• The courses completed before approval must involve both;
  • CPH
  • Canadian Investment Manager designation, CIM Designation, or Level 1 or higher of the CFA Program
• Two years of RIME is required that is acceptable to CIRO in the three years preceeding approval request.

Investment Representatives Soley Take Client Orders

• Investment Representatives are registered to take or submit client orders for execution.
• IRs must not provide clients with investment advice.
• Similar to the term RR, IR refers to employees of CIRO investment dealer members.
• IRs, like RRs, are registered provincially as dealing representatives.

IR Proficiency Requirements

• The proficiency requirements for IRs are similar to those for RRs, but not as extensive.
• IRs must complete the CSC, the CPH, and a 30-day training program, as opposed to a 90-day program.
• IRs are subject to a six-month period of supervision and to the compliance portion of the CE requirements, but do not need to fulfill the 30-month WME requirement.

IR Roles

• Sales assistant
• IR at an Order Execution Only -Also known as an online or discount broker firm.

Order Execution Only Firms

• IRs at Order Execution Only Firms are registered to take orders and submit them for execution.
• IRs must recognize when an order is beyond their authority and pass it on to someone appropriately licensed or to a supervisor.
• For example, someone licensed in Ontario cannot accept an order from someone who resides in Manitoba.
• Similarly, IRs cannot accept options orders unless they have met the additional proficiency requirements and are licensed.

Non-Registered Staff Restrictions

• SRO rules restrict the activities of non-registered personnel, such as administrative assistants, office managers, and mailroom clerks, who are employed by a dealer member or related financial services entity.
• Non-registered staff cannot open client accounts or complete Know Your Client (KYC) .
• Non-registered staff cannot provide recommendations or advice on securities.
• Non-registered staff cannot solicit securities transactions or assist clients in completing orders for securities transactions.

Non-Registered Staff Abilities

• Advertising services and products offered.
• Delivering or receiving securities to or from clients.
• Contacting clients to arrange appointments/give notice regarding deficiencies in completed forms.
• Providing information on a client's account status and providing account balances, quotes, and other market information.

Non-Registered Staff: Permitted Activities

• Contacting the public (e.g., inviting the public to seminars and forwarding non-securities-specific information).
• Receiving completed account applications to forward to the dealer member for approval.
• Distributing account applications.
• Only a registered person can assist in completing account applications.
• Document reviews by a designated supervisor are needed to ensure the KYC rule is followed.

Restrictions For Trainees

• People during training for a period of 30 - 90 days cannot engage in any trading, particularily they can't partake in the following;
  • Providing securities recommendations, opinions, or advice
  • Soliciting, accepting, or processing any orders, including unsolicited orders

Mutual Fund Client Base

• Registrants deal only in mutual funds who are employed by a firm registered as an investment dealer and not as a mutual fund dealer, but they can purchase and sell only mutual funds.
• They must also complete the CSC and the CPH within 270 days of initial approval and upgrade to Registered Representative within 18 months of initial approval.

Restricted Security Transactions

• Applicable during training periods , RR cannot transact in any non-mutual fund securities with anyone.
• As an RR, referrals from other people outside the same registration can also be given to you.

Ciro Review: Fit and Proper Test

• Thorough checks of staff regarding Ciro or registration approval checks known as fit and proper test.
• CIRO reviews and checks are also carried out with regulatory or criminal records if they are on the national registration list.

Key Things For Registrants To Do

• All regulatory filings regarding registered individuals must be completed through the NRD
• An initial submission involves the completion of Form 33-109F4 on behalf of registered individuals and non-registered individuals when applying for registration through the NRD for the first time
• A notice of change must be submitted when an individual’s registration information changes
• Registrants must therefore notify their dealer members as soon as possible (within two business days) whenever there is any change to their registration information so that it can be reported on NRD within the prescribed time period

Ciro Approval Authority

• CIRO has the right to refuse applications. The following could also be;
  • If applicants don't meet certain rulings
  • Doesn't follow Ciro Rulings.
  • If the person isn't experienced or doesn't have full solvency to have approval

Continuing Education

• CE Is important in the Canadian security industry, with its increasing complexity.
• Dealer members get to design their own professional coursers inline with CIRO accreditation.

As An RR You Must;

• Have approved programs consistently, either more or one.
• Each course must have around 20 hours of professional training.
• 5 hours of your program must take place in Canada.
• If you switch to another dealer or change to another role, some CE may be invalid for both old and new dealer.

Registrant's Obligation

• Registrants must know their obligations for contact toward different clients. CIRO guides the method of these contacts.

Advertising: What Can You Do?

• You can use personal names in ads, if the people are actually contracted with consent involved for the person's agent to be acting as the employee's ad.
• Certifications can be shown, but registration can't be displayed if it's just a person with a certificate.

Crct And Telemarketing.

• CRTC enforce telemarketing regulations through DNCL. Rules in place regarding times, penalties and conditions.
• You must subscribe To DNCL, the National DNCL , you do not have to contact the list if you the caller knows.

Anti Spam Legislation

• CRTC Enforce anti-spam legislations. Buisnesses Need expressed conscent for emails (CEMS), alongside contact information.
• Non-compliancy may face monetary laws.

Definition of Trade: Marketing

• Advertising In legislation to consider solicitations with other related things for CIRO regulation, rules must be unbiased.
• Communications to public must not omit facts if its considered misleeading.

Sales Comms

• Sales coms for mutual funds must contain no false info, or conflicting facts not given in any forms or Docs.
• The document should contain the following criteria
• Must summarize facts under no more than 2 pages
• easy understading language must be used

Performance

• data must contain standard performance date, and contain factors for calculation. Data can only reflect changes for the duration for security or prospectus.

Important notes

• Must provide explanation and must not omit factors.

Conflicts

• RR Is responsible for handling conflict and personal contact. a conflict of interests occurs when parties divert or become inconsistent
• Conflicts must be fair with transparency, and avoided when the clients aren't suited.

NI31-103

• NI31 addresses where the conflicts could lead when the conflicts are considered material.

Standards For Handling Conflicts

• Conflict should be reviewed, including client factors, identified with disclosure. It should be done transparently.

Outside activities

• rr must report to member of dealer. Member might report to NRD within specified time and manners.
• Asses potential issues within activities and have it all approved by leader. Check for non-reportable ones from NRD.

Protecting Client Data + Cybers

• It Is important to gather information and ensure protection of all that in the course.
• The PIPEDA sets the rules of collecting and ensuring data protection.
• RR Must keep info confidential, and under only under certain purposes can information be used.
• A Growing concern is cyberattacks for firm's info. it requires a total approach.

Best Practices Guide Standards

• Cyber Incident Guide Provides with framework of managing. Incidents reportable under 3 days, and report will be done within 30 days