Sleeping Soundly By Dealing With Fee Arrangement Conflicts

• Published date: 04 April 2024
• Subject Matter: Law Department Performance, Performance, Management
• Law Firm: Borden Ladner Gervais LLP
• Author: AUM Law

Since the CFRs in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations came into effect the other year, firms have been making serious efforts to meet their enhanced conduct obligations. This includes taking reasonable steps to identify existing and reasonably foreseeable material conflicts of interest and to address those conflicts in the best interests of clients. If there is no way to address a material conflict in the best interest of clients using controls, the conflict must be avoided.

Last year, the CSA and CIRO staff (the Regulators) published further guidance outlining their expectations relating to identifying and addressing material conflicts of interest: Joint CSA and CIRO Staff Notice 31-363 (Notice).

One specific conflict that was highlighted was "fees charged to clients", with the Regulators noting that that some firms had not identified that different / multiple fee schedules could be a material conflict of interest in certain circumstances as it could affect either or both decisions of the client or the services or products offered by the firm. The Regulators noted that where a client is charged more than other clients for the same or substantially similar products or services, there could be a breach of a registrant's duty to treat clients fairly, honestly and in good faith. Additionally, they reminded firms that disclosure alone is not sufficient to address this conflict, nor is disclosure alone sufficient to demonstrate that the firm has met its standard of care.

Our experience with clients has led us to observe that this conflict is amongst the most consequential that needs to be considered and addressed. In considering the impact of different / multiple fee schedules for the same services, firms should be cognizant that they will be expected to have acceptable...