Most of Canada's financial regulators are walking away from a proposal that would have legally required people giving financial advice to put their clients' "best interest" ahead of their own financial benefit and their employer's bottom line.

A bulletin released today by the Canadian Securities Administrators (CSA) says all provincial regulators except the Ontario Securities Commission and the Financial and Consumer Services Commission in New Brunswick will scrap talks they've been holding for the past five years to introduce a mandatory best interest standard.

That standard would apply to anyone providing financial advice to the public — from bank employees to workers at investment firms and brokerages.

"This is a very disheartening day," said investor advocate Ken Kivenko. "Things are definitely not working for Canadians who trust the financial advice they're getting."

Go Public has heard from employees at Canada's big five banks and other financial institutions who admit they often put people's money into mutual funds and other investments that will generate sales revenue, commissions and management fees but that often aren't the best option for the client.

The vast majority of investment "advisors" in Canada are actually salespeople — only advisers spelled with an "e" have a legal duty to act in a client's best interest.

Ken Kivenko

Investor advocate Ken Kivenko calls it 'a very disheartening day' after learning all but two of Canada's provincial securities regulators aren't interested in introducing a legal requirement that those who provide financial advice put their clients' interests first.

"Unless you live in Ontario or New Brunswick, your savings will continue to be managed by salespeople who aren't bound by a best interest duty," said Kivenko, who runs the financial consumer advocacy site CanadianFundWatch.com.

"If this happened in the [United States], there'd be 40 consumer organizations shouting about it."

Ontario and N.B. to go it alone

Today's bulletin says the regulators in Ontario and New Brunswick will hold "focused consultations" with stakeholders in the coming months, but the regulators in B.C., Alberta, Manitoba and Quebec won't be exploring the idea any further.

Instead, those provinces will continue to look at what's called "target reform" proposals for the industry, including regulating the titles used by people who provide financial advice, conflicts of interest and the suitability of investment products.

The bulletin says both B.C.'s and Alberta's regulators believe introducing a statutory best interest standard could lead to clients being overly trustful of the people giving them financial advice, when those advisors would still be able to recommend products that earn them money.

Years of discussion fall apart

Initial discussions for a best interest standard began in 2004, when the Ontario Securities Commission published a consultation paper that included a proposal to explore whether people giving financial consumers advice should have a legal requirement to act in a client's best interest.

The CSA published a paper in 2012 and then released a second consultation paper in 2016.

Australia and the U.K. have already implemented a best interest standard, and the E.U. will have one in place by January.

'This is a huge setback'

The Foundation for Advancement of Investor Rights (FAIR Canada) has been calling for it since 2010.

"We're very disappointed that the majority of securities regulators in Canada don't favour Canadians having professional financial advice that's in their interest," said Ermanno Pascutto, chair of FAIR Canada's board of directors.

Ermanno Pascutto

Ermanno Pascutto of the Foundation for Advancement of Investor Rights (FAIR Canada) says the group has been calling for a best interest standard since 2010. (CBC)

He called the news a "huge setback," but said he's not surprised B.C. and Alberta are walking away because "they have the least effective investor protection of all the jurisdictions."

Pascutto also said today's announcement is one more reason the Ontario Securities Commission needs to continue to exist. The federal government is spearheading a plan to roll out a national regulatory system next year, called the Capital Markets Regulatory Authority (CMRA), which would replace all provincial regulators and enact uniform legislation across the country.

"In recent years, Ontario has been a leader in terms of investor protections," Pascutto said. "If it's replaced by the CMRA, all its good work will die."

with files from James Roberts