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CPH
®
Study Guide
Chapter 1: Canadian Securities Industry
Registrant Code of Ethics and Standards of Conduct
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Practice Exams and Flash Cards
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4
There are two main types of retail brokerage firms. They are:
Full-service brokerage firms:
•
These firms offer investment advice.
•
Since investment advice is provided, full-service firms charge a higher commission
than discount brokerage firms (see below).
Discount brokerage firms:
•
These firms do not offer investment advice.
•
Investment advice is not provided; therefore, discount brokerage firms charge less
commission than full-service firms.
Discount Brokerages—Application to Be Exempt from Suitability Rules
As discount brokerages do not provide advisory services to clients (they simply assist
them in the purchase and sale of shares), there was much discussion in the industry as to
whether they should be required to apply suitability rules. The Canadian Securities
Administrators (CSA) ruled that discount brokerages could apply to be exempt from
suitability requirements. Approvals were granted provided the following conditions were
met:
•
The discount brokerage must act as a completely separate entity to any subsidiary
that does grant advice.
•
The separate entity must have completely separate business cards, letterhead,
registered persons, and documentation.
•
Individuals who work for the discount brokerage must not be compensated based
on transactional amounts (i.e. on commission).
•
The clients' written acknowledgment must be obtained to the effect that they
understand they are not being provided with advice or recommendations, and as
such, the dealer is not required to determine if any investments made for clients are
suitable based on their objectives and/or risk tolerance.