The group that oversees trading activity on Canada’s financial markets is taking action to protect the growing ranks of do-it-yourself (DIY) investors from bogus online investment advice.
The Canadian Investment Regulatory Organization (CIRO) has proposed easing restrictions that prohibit order-execution-only (OEO) dealers from offering investment advice.
The plan would permit dealers like online discount trading platforms that are currently permitted to merely execute trades, the option to provide “decision-making supports” like educational resources, sample portfolios and self-assessment tools.
OEO dealers would still be prohibited from making specific investments recommendations.
The CIRO says the push comes from investor advocacy groups and front-line dealers who no doubt witness and execute trades that could be based on misinformation.
The move to alter the rules was prompted by a CIRO-commissioned survey that exposes the growing influence of unregulated social media, online forums and so-called “finfluencers” on DIY investors.
The CIRO is accepting comments on the proposal until Nov. 10 and has prioritized updating the rules for 2026.
Educating DIY Investors
The challenge for CIRO is to draw a distinct line between education and recommendations. It isn’t clear yet what sort of educational material would be permitted but sources would be regulated.
Types of communication could be basic background on fundamental investment principles or relevant alerts and notifications relating to potential or current investments. They could also include related company earnings reports, regulatory actions, press releases or dividend announcements.
Others could warn them of the risks involved with volatile or speculative assets.
OEO dealers could also provide more general self-assessment tools to measure investment objective and risk tolerance over time to accurately align investment decisions with the client’s self-defined goals.
Sample portfolio versus model portfolio
The CIRO has proposed allowing OEO dealers to also provide generic “sample portfolios” to highlight the importance of diversification, asset allocations and risk management.
A sample portfolio would provide filtering tools to allow clients to select investments to fill in the asset allocation on their own.
It draws the line at “model portfolios” offered by full-service dealers and portfolio managers, which normally include specific investments personalized to the individual client.
Potential to create hybrid advisor designation
Most trading platforms already offer DIY investors tutorials on how to interpret valuation metrics along with other investing basics. Some even provide analyst ratings and technical analysis tools to spot market trends.
Another service most online trading platforms offer to hedge risk is the ability to set conditional orders such as stop losses. A trailing stop loss allows you to pre-set an automatic sell price that remains just below the current price to lock in gains and limit losses.
The CIRO suggests enterprising OEO dealers can package old and newly allowed services to offer DIY investors a hybrid service at a discount below what a full service advisor would charge.
The objective would be to provide the tools to allow investors to make their own decisions.
The change could lead to a new advisor designation, which would be regulated.
More DIY investors, more bogus advice
The DIY investing trend ballooned during the COVID-19 pandemic and lockdown, and still continues.
The CIRO’s investor survey found that four out of 10 DIY investors opened their first DIY account within the last three years and are more likely than other investors to use unregulated online sources of investing information and advice.
It also found most DIY investors tried to double-check and validate investment advice using multiple online sources but ended up being directed to other unregulated entities.
