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ETHICS EXPLAINED

What duties and obligations does a representative owe…

The credibility of the financial products and services industry relies primarily on the public’s trust in the industry. This is why the rules of ethics contain a series of duties and obligations that every CSF member must respect in order to maintain that trust. Thus, whether you practise in the area of securities, insurance or financial planning, the basic rules are the same as regards the public.

In brief, every representative must:

  • Practise with integrity;
  • Be competent and available, and provide a high quality service;
  • Act with dignity and respect;
  • Comply with applicable legislative and regulatory requirements.

Demonstrate competence and take his limits into account

Even though a representative is a professional within his field, it is difficult to be an expert in everything. Therefore, a representative must not agree to offer services for which he is not qualified. If he will be rendering such services, he must obtain the necessary assistance, when required.

Moreover, it is important not to promise a client a specific result, such as regarding the performance of an investment. The general principle is that a representative must use the best means possible to provide the desired result.

The CSF’s Disciplinary Committee has already penalized a financial security adviser for holding out the prospect of overly optimistic returns to his client with respect to a universal life insurance policy.

It is therefore better for a representative to adopt a conservative attitude when presenting the possibility of profits to clients.

Practise with integrity

When a person has integrity, it means that person acts with irreproachable probity and honesty. Acting with integrity as a representative entails being honest, transparent and conscientious. By acting with integrity, representatives inspire trust!

The most obvious example of a lack of integrity is undoubtedly the misappropriation of funds. This is one of the most serious offences a representative can commit. The usual penalty is a permanent striking off the roll, regardless of the amount involved.

Another example of a lack of integrity is a representative signing a document as a “witness” without being able to certify under oath that the person signed the document in his presence. When a representative signs a document as a witness, he must be able to confirm that the signature is genuine. Therefore, he must have SEEN the person sign the document, because by signing as a witness, that is precisely what he is certifying.

Similarly, by signing a document as a witness, the representative effectively certifies that he has fulfilled his professional obligations and becomes liable in several respects. Signing a document as a financial security adviser or mutual fund representative without having acted as such or when the representative does not know the client is a serious breach of the duty to act with integrity.

Provide clients with all the information that may be necessary or useful

A representative must fully and objectively explain to his client the type, advantages and disadvantages of the product or service that he is proposing to him. Moreover, the representative must provide his client with the explanation the client needs to understand and evaluate the product or service being proposed and must refrain from giving the client information or making a statement that is inaccurate or incomplete. But that’s not all. The representative must also ensure that the client has properly understood the explanation!

The CSF’s Disciplinary Committee reminds representatives that it is important to ensure a client fully understands the nature of the product offered:

[translation]

“This obligation requires that the professional do more than merely explain the recommended product; he must also ensure that the client has properly understood the explanation, particularly regarding any redemption fees. It is not sufficient for the representative to leave brochures from the company in which the client is proposing to invest, describing its portfolio, in order to satisfy the regulatory requirements. The representative must point out the paragraphs the client should read and understand. Subsequently, he must meet with his client or contact him in order to make sure the client has understood and he must once again answer the client’s questions, particularly if the client does not have good investment knowledge.”

Read the full text of the decision (in French only)

Know the client and his needs

To properly advise a client about products that suit him, a representative must first make sure he has all the necessary information. The representative must ensure he has a full understanding of the facts before making a recommendation to a client or giving him information. First and foremost, he must know the person who is before him—his objectives, needs, family situation, etc.

The representative’s analysis must, in particular, be based on the information collected in order for him to make an appropriate recommendation to his client. 

Act in the interests of the client and avoid placing himself in a situation of conflict of interest

The client’s interests and the representative’s loyalty to the client must take precedence over everything else.

Consequently, a representative must avoid placing himself in a situation of conflict of interest and must always place the client’s interests ahead of his. If the representative finds himself in a situation of conflict of interest, he must inform his client.

Maintain the confidentiality of information held about a client

The rules, in insurance as well as in financial planning and securities, require that information a representative holds about a client remain confidential, unless certain legal provisions or a court order requires that the representative disclose that information. A representative is also prohibited from using such information for his own benefit or for the benefit of someone else.

In practice, this means the representative as well as those who collaborate with him and any person who carries on activities with him must ensure the confidentiality of client records and information regarding clients wherever that information may be and regardless of the means of communication used.

Moreover, representatives are subject to the Act respecting the protection of personal information in the private sector. This provincial statute is designed to protect clients’ personal information and contains a number of measures a representative must respect. 

  • When a representative solicits a client or wishes to compete with a competitor, the methods used must be fair.
  • A representative must not disparage or discredit the products and services of his colleagues or even of firms, brokers, insurers and financial institutions.
  • A representative may compare products to properly differentiate them and recommend one rather than another but must not directly attack the professional competence of an individual or disparage an insurer, a firm or a broker.
  • Moreover, a representative must abstain from making comments, in any form, that are false, inaccurate or incomplete.

In the exercise of his professional activities, a representative must act honestly and diligently. The image of the profession depends on his doing so. The members of the CSF play an important role, and their conduct must serve the positive development of the profession and inspire confidence in the public. The syndic of the CSF plays an important role in maintaining the credibility of the profession. He ensures respect for ethical rules and investigates where necessary.