My latest Letter from the President summarizes the recently released annual results for investment dealer firm groupings over the past year. 2015 was one of the worst years in terms of cost increases, earnings performance, layoffs and firm attrition. Retail and institutional boutique firms were hard-hit by a perfect storm of adverse cyclical and structural business conditions, the need for new technology and relentless escalating regulatory compliance costs. The pressures on business lines unleashed structural change in the industry—from firm downsizing, to mergers and acquisitions, to firm closures.

The considerable impact of the compliance burden on firms, capital markets and investors argues that regulators need to take their actions fully into account in making rules and regulations.

In its recently published draft statement of priorities, the Ontario Securities Commission (OSC) lists regulatory reforms that improve the client-advisor relationship as its top priority. Specifically, the OSC plans to publish regulatory provisions to create a “best interest” standard. These initiatives will follow the five-year development and implementation of the Client Relationship Model (CRM). Given the impact of regulatory costs on integrated and boutique firms and their clients, I stress in my letter that these new regulatory proposals should be subject to cost-benefit analysis—even before regulators engage in planned consultations with market participants—to assess the potential impact on firms, advisors and clients.

Positive signs in the commodities and non-resource markets are laying a foundation for sustained recovery for small players in the investment industry. Smaller firms are better positioned to take advantage of improving conditions. They have made significant expenditure cuts and undertaken operational efficiency improvements to boost their competitiveness. They can respond nimbly and quickly to emerging opportunities in the marketplace. Unnecessary rules or regulations not supported by cost-benefit analysis will interfere with recovery. The country can ill-afford further losses to the boutique sector.

To read my full letter, click here.