November 9, 2020 | Ontario Study
As part of the Ontario Securities Commission’s (the OSC or we) strategy and action plan to respond to
the needs and priorities of Ontario seniors, described in OSC Staff Notice 11- 779 Seniors Strategy (the
Seniors Strategy), we are publishing Protecting Aging Investors through Behavioural Insights.
This research report (the Report) complements the Canadian Securities Administrators’ (the CSA) policy
project to enhance the protection of older and vulnerable investors. The Report identifies behaviorally
informed techniques dealers and advisers can use to encourage their older clients to provide the
necessary information for enhanced investor protection measures.
A key component of the OSC’s Seniors Strategy is addressing issues of financial exploitation and
diminished mental capacity in aging investors. To that end, the OSC, together with the CSA, recently
published for comment proposed amendments (the Proposed Amendments) to National Instrument 31-
103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and changes to
Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations
to enhance protection of older and vulnerable clients.
The Proposed Amendments will require registrants to take reasonable steps to obtain the name and contact information of a trusted contact person (TCP). A TCP is a resource for a registrant to assist in protecting a client’s financial interests or assets when responding to possible circumstances of financial exploitation or concerns about declining mental capacity. Clients may decline to provide TCP information. It is therefore important to develop methods of obtaining TCP-related information that help registrants effectively convey to their clients the importance and benefits of appointing a TCP.
Most investors would benefit from appointing a TCP, but people do not always act in their own best interest. Behavioral insights reveal that individual decisions are not deliberate or rational in the way policymakers typically assume. When faced with novel decisions, people often rely on biased decision-making processes that can lead to suboptimal outcomes.
The purpose of the research project was to understand the psychological, emotional, and social factors
that may influence an older investor’s decisions and identify behaviorally informed ways of increasing
the likelihood they will appoint a TCP.
The Report provides suggestions intended to assist the investment industry in obtaining trusted contact information from clients. This continues the OSC Investor Office’s focus on improving the investor experience through the application of behavioral insights, promoting the use of plain language, and other initiatives.
A review of literature from behavioural science, psychology and economics revealed that there are
several biases that have a greater impact on decision-making as individuals age. The key biases that can
affect investors willingness to appoint a TCP are:
Optimism Bias: The tendency for people to underestimate the likelihood of negative events. This can lead investors to underweight the risks associated with cognitive decline and financial exploitation.
Avoidance of Negative Emotions: People prevent themselves from thinking about situations
that create unpleasant feelings. Investors may not consider the importance of appointing a TCP
because it requires them to imagine bad things happening to them.
Illusory Superiority: The tendency for people to overestimate their qualities, in relation to the same
qualities of other people. This can lead investors to think that others may need TCPs but not them.
Although TCP information can be solicited in many ways, our research revealed that financial advisors’
practices will most likely include presenting clients with a form. Embedding behavioural insights into the
form can mitigate the impact of biases on investors’ decision-making processes.
This research demonstrates that there are behaviorally informed ways to significantly increase the likelihood that older investors will appoint a TCP so that dealers and advisers can help protect their financial well-being. Relatively small changes in the design of the form used to collect TCP information can have significant impacts. These findings reinforce the rationale behind the proposed policy and demonstrate that behavioral science is an important policy tool for regulators.
We encourage registrants to review the findings of the Report and consider testing the use of these approaches when designing their own policies and procedures. If proven effective, we encourage them to integrate these tactics into their current practices. More generally, we encourage dealers and advisers to test methods of presenting information to their clients in ways that make it easier for them to comprehend and act on.