The Analyst Winter 2025 Issue

WINTER 2025 THE FUTURE OF FINANCE: TRENDS & INNOVATIONS

In this issue:

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The Future of Finance: Trends & Innovations

Hillsdale Investment Management Award

Resilience, not Retirement

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Page 12

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| Winter 2025

From the editor | Sara Maginn Pacella Year-end is the perfect time to reflect on the past and set a course for the year ahead. The winter issue of The Analyst, themed “The Future of Finance: Trends and Innovations,” shares insights and ideas to intrigue, inspire and help define goals to bring you into 2026.

Table of Contents From the editor.................................. 2

Today’s economic and geopolitical dynamics can make the future feel uncertain. Our feature article draws on actionable insights from four renowned financial professionals who discuss key trends and strategies to help both institutional and retail investors navigate what the future may hold.

Board chair message.......................... 3 From the desk of the CEO.................. 4 The Future of Investment Management...................................... 6

Leading applied behavioural science practitioner Kelly Peters shares her research and expertise on the reasoning behind people’s investment choices and what is needed for financial resilience in evolving minds and financial markets.

Book Review Web3's Future.................................. 10 Awards Hillsdale Investment ManagementCFA Society Toronto Research Award............................... 12 Charterholder profile Heather Cooke, CFA......................... 15 Radical Ventures and the rise of Canadian AI................................... 18 Resilience, not retirement: Rethinking the future of financial behaviour........................... 20 AI washing: Signs, symptoms and solutions.................................... 22 Toward a better understanding of multi-family offices in Canada...... 25 Trends and innovation in financial modeling: How AI is redefining the modeler's role............................. 27 Advocacy Corner...............................30

In this issue’s charterholder profile, Heather Cooke, CFA, CFA Society Toronto chair and former chief investment officer at a family office, speaks about her career path and the important role of mentors and volunteerism with CFA Society Toronto in her career. She shares her vision for CFA Society Toronto as she embarks on her term as board chair.

Our review of Alex Tapscott’s Globe and Mail and Wall Street Journal bestseller, Web 3: Charting the Internet’s Next Economic and Cultural Frontier, links tomorrow’s innovations to familiar precedents and works to forecast an insightful look at probable future disruptions.

The winners of the 2025 Hillsdale Investment Management – CFA Society Toronto Research Award share the findings of their award-winning study, a ground-breaking academic evaluation of machine learning techniques for forecasting equity risk premiums in Canadian capital markets and its notable implications for industry practitioners.

Artificial intelligence became increasingly prominent in 2025 and remains a trending issue across virtually every industry as we enter 2026. As such, this issue explores how AI is redefining the financial modeler’s role and how financial modelers must balance power and responsibility.

We also provide a high-level summary of key observations and takeaways from CFA Institute’s report, AI Washing: Signs, Symptoms, and Suggested Solutions for Investment Stakeholders.

And our regular AI Watch feature provides an overview of CPP Investment’s paper, Seeding the Future: Radical Ventures and the Rise of Canadian AI. Family offices are becoming an increasingly prominent force in the wealth management landscape, with single- and multi-family offices growing in Canada. Our article works to demystify family offices and explore their evolving role in Canada.

We hope you’ve found some meaningful insights that have educated and inspired you this year!

Warm regards,

Welcome new members................... 31 Sara Maginn Pacella

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

Board chair message | Heather Cooke, CFA The year 2026 marks our Society’s 90th anniversary, and it is especially meaningful to step into the role of chair as we reach this milestone together.

Our story goes back to 1936, when the Security Analysts’ Association of Toronto began as a handful of analysts meeting over lunch to trade ideas.

Today we are a community of over 11,500 members with multiple annual marquee conferences and our flagship event, the Annual Investment Dinner, which has become the annual “homecoming” for the Toronto financial community. Names have changed and formats have evolved, but our commitment to supporting and lifting each other up through community, competency, content and credibility has remained constant.

When I became a member of CFA Society Toronto, I wasn’t only looking to deepen my technical skills – I was looking for a community to challenge me, open doors and help me learn from others. I found that here. That experience encouraged me to volunteer so I could give back to this wonderful community. After 10 years of volunteering at CFA Society Toronto, it’s a privilege to now serve as chair, and I want to thank Brian Madden, past chair for his steady leadership and service to our members.

Like many of you, I discovered early that the return on membership shows up when you lean in.

Volunteering put me shoulder to shoulder with peers and senior leaders. The relationships I built here made a lasting difference to my confidence, my perspective and my career trajectory. CFA Society Toronto membership opened doors for me, and stepping through them created new possibilities.

We continue to experience profound changes in our community and the global economy, especially with massive technological advancements and the promises and challenges they bring. Access to CFA Society Toronto is an asset, providing career support as you tackle these tectonic changes.

The value of membership compounds with participation, and the returns show up when you engage.

If you have been considering attending an event, joining a committee or mentoring a colleague, this is your nudge. Try a simple cadence: one event, one learning touchpoint, one new connection for each quarter, and don’t forget to attend the monthly Brewing Connections. I hope you will add your voice and your story to this milestone year.

The Analyst is published quarterly by CFA Society Toronto 120 Adelaide Street West, Suite 2205 Toronto, Ontario M5H 1T1 Telephone: 416.366.5755 Website: www.cfatoronto.ca General questions: info@cfatoronto.ca Management Office Chief Executive Officer Fred Pinto, CFA Director, Member Events & Experiences Jenny Yeo Director, Operations Valerie Weddell Director, Marketing & Communications Kenny Chan Senior Manager, Education & Events Meredith Lowry Senior Manager, Education & Events Mary-Margaret Courtney Senior Manager, IT Alexandra Pegg Volunteer Relations Manager Leslie Venturino Senior Manager, Corporate Relations & Business Development Aaron Ly Manager, Leadership & Board Governance Calandra Muller Marketing & Communications Manager Jessi-Lyna Wan Manager, Next Gen Program Nyssa Lawson Office & Membership Administrator Tania Lewis Senior Associate, Education & Events Breanne Cheeseman Associate, Marketing & Outreach Sabina Cichy

I look forward to seeing you this year and hearing how we can help you thrive.

Volunteers

Sincerely,

Heather Cooke, CFA Chair, Board of Directors CFA Society Toronto

Chair, The Analyst, Editorial Committee, Joanna Wolff, CFA Editorial committee members Alan Cody, CFA Sanaz Danielle Fotoohi, CFA Angha Gupta, CFA Ben Jekiv, CFA Winfred Lam, CFA Rossa O'Reilly, CFA Attika Raj, CFA Thomas Shen, CFA Writers Joe Chidley Sebastien Davies, CFA Sanaz Danielle Fotoohi, CFA Angha Gupta, CFA Ed Ho, CFA Rossa O’Reilly, CFA Ria Patel, CFA Ian Schnoor, CFA Ryan Sheriff, CFA

Editor Sara Maginn Pacella

Art director Janet Sangalang

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

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From the desk of the CEO | Fred Pinto, CFA, ICD.D Advertisers’ Index

Ninety years is a rare milestone for any organization. As we enter 2026, CFA Society Toronto will be celebrating its 90th anniversary of serving Toronto’s finance and investment community. Much has changed – the tools have changed, our membership and reach have grown, and the issues we face today are more complex.

CIBC Asset Management.................. 32 Global X.....................................17 & 29 Mackenzie Investments............. 19 & 28 Morningstar DBRS............................24

However, what has remained constant is the reason the Society exists: to give finance and investment professionals a place to connect, share ideas and grow together. As we mark our 90th anniversary, I am proud of our evolution from that informal circle to the world’s premier Society of CFA Charterholders, with over 11,500 members at the heart of Canada’s investment industry.

RBC GAM.......................................... 26 RBC PH&N IC......................................9 Robeco............................................. 23 Rotman.............................................. 5 Scotia GAM....................................... 14 TDAM........................................ 11 & 31

Wherever you are in your career, CFA Society Toronto empowers you to thrive. Our goal is to meet you where you are, with people, insight, skills and visibility that support your next step. Early in your career, your priority might be to advance and level up. You need access to mentors, practical learning, skill development and a network that helps you find your footing. In the middle part of your career, you may be looking to scale your influence, broaden your reach and hone your leadership skills. Later in your career, your focus may shift to amplifying your impact and legacy while giving back by supporting future leaders in our industry.

At the centre of our Society is the power of community. We create purposeful opportunities for members to connect, share ideas and get to know each other through our events and programming. Speaking, moderating, writing and volunteer leadership opportunities provide our members with critical skills to excel in their careers and enhance their personal brands.

Opinions expressed in The Analyst do not necessarily represent those of the authors’ firms of employment or of CFA Society Toronto and do not constitute a solicitation for the purchase or sale of any financial instruments. Information herein is obtained from various sources and is not guaranteed for accuracy or completeness. The authors’ firms and CFA Society Toronto therefore disclaim any liability arising from the use of information in this publication. The information provided herein is intended only as general information that may or may not reflect the most current developments. The mention of particular companies or individuals does not represent an endorsement by CFA Society Toronto. Although professionals may prepare these materials or be quoted in them, this information should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

Membership value compounds with participation over time. Actions become outcomes.

Each time you attend an event, take part in a learning offering or build a new connection, you add another layer to your network, your knowledge and your profile. Volunteering with the Society helps these benefits grow and reinforce each other, and the more you participate, the more value you gain from being a member.

Our 90th anniversary is a chance to bring all of this into focus and to shine a spotlight on our members’ stories. As you read this issue of The Analyst, I encourage you to think about what you’d like your story to be and how connecting with CFA Society Toronto can support your growth with community, competency, content and credibility that matter.

Thank you for being part of the CFA Society Toronto community in our 90th year, and all the very best for 2026.

Sincerely,

Fred Pinto, CFA, ICD.D CEO, CFA Society Toronto

Welcome new members and CFA charterholders CFA Society Toronto would like to welcome and congratulate all new members and CFA charterholders. See page 31 full list of new members.

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

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THE FUTURE OF FINANCE: TRENDS & INNOVATIONS

The future of investment management: Adapting, changing and growing in 2026 and beyond

By Angha Gupta, CFA Note: Not all views expressed in this article are representative of all speakers.

In today’s economic and geopolitical context, the future can feel extremely unpredictable, especially when it comes to growing portfolios and money. Retail investors trust financial institutions and other institutional investors with their money, while institutional investors trust their processes and analytical prowess. But how does it all get put to the test at a time when things are changing so rapidly? The Analyst summarizes conversations with four skilled financial professionals about their vision for the future and actionable insights that can help both institutional and retail investors.

Introducing the experts

© Maxim Morin / OSA

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Sarah Butcher, MBA

Brian Madden, CFA, CFP

Maxime Menard, MBA

Rhodri Preece, CFA

Sarah Butcher is a managing director, head of BlackRock’s Americas Institutional Business (AIB) in Canada and the Canadian territory lead for BlackRock’s institutional capital formation team, where she is responsible for developing and executing AIB’s strategy in Canada and delivering the firm’s full suite of investment capabilities and solutions to institutional clients across Canada.

Brian Madden is the chief investment officer at First Avenue Investment Counsel, where he leads the public markets investment team in formulating, executing and communicating investment strategies and processes across various investment mandates. Madden is past chair of CFA Society Toronto’s Board of Directors.

Maxime Menard is the global president and chief executive officer at Fiera Capital, where he is responsible for setting the firm’s strategic direction, driving global growth and ensuring operational excellence across all markets and investment platforms.

Rhodri Preece is the senior head of research for CFA Institute, where he is responsible for leading the global research agenda of CFA Institute Research and Policy Center, originating and developing research projects on key investment themes and topics, managing the research staff and collaborating with leading investment practitioners and academics.

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

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Strategic vision and key trends Let’s explore some key trends and visions of the future as discussed by our experts, along with some examples of what different firms are doing related to these trends.

Rise of private markets and growing demand for a well-rounded portfolio As markets become more complex, both in terms of product offerings and geopolitical pressures, interest rates continue to fluctuate, and inflation creates a sticky situation with a real risk of stagflation.

The typical fixed income and equity mix may not provide the best returns and protection against inflation in portfolios. With stagflation, fixed income will see interest rates drop, while equity returns will not keep up with inflationary pressures entering a period of unstable pricing. There is a growing demand for more diversification, and private markets are becoming a key part of many portfolios.

For example, BlackRock is positioning itself to expand access for clients seeking exposure to private debt markets, among other actions. According to Butcher: “A broadening investor base is recognizing some of the potential benefits private credit may contribute to enhancing the overall expected risk-adjusted returns

within a total portfolio context. BlackRock is excited to now be positioned to deliver for an expanding Canadian investor base.”

As well, Fiera Capital is finding that the demand for real assets as protection against inflation are rising, and real estate is not the only real asset that investors are looking for.

The use of technology and artificial intelligence Technologies based on artificial intelligence (AI) and machine learning are emerging as the next major revolution in almost all areas of life, including the financial industry. However, what AI is and how it can be used are still topics of discussion in most, if not all, organizations.

If used properly, AI can help reduce the time from ideation to implementation, says Menard. AI can save time in administrative efforts and probably result in fewer errors, save time and costs on mundane tasks and, if used properly, help unlock insights that are out there but just out of grasp.

For example, First Avenue Investment Counsel recently licensed a machine learning tool to help augment their stock selection. In a study conducted a few years ago, CFA Institute found that, along with generative AI, tokenization to distribute traditional products can help increase their availability. This would give retail investors access to traditionally institutional-grade products through fractional ownership.

Technologies based on artificial intelligence (AI) and machine learning are emerging as the next major revolution in almost all areas of life, including the financial industry. ©

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

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THE FUTURE OF FINANCE: TRENDS & INNOVATIONS

Diverging economies

Managing investor relations through the ups and downs

Globally, international trade, capital flows and supply chains are becoming fragmented. This is causing economic blocks to form.

Additionally, demographic trends are leading to shrinking labour support. As CFA Institute found, firms need to reassess their global footprint and adapt their services and product offerings to be more competitive and effective in the markets in which they operate.

BlackRock’s Investment Institute sees multiple potential long-term outcomes from the economic tug of war and is using scenarios to better inform its strategic views and identify opportunities.

One of the biggest issues many institutional investors face is managing investor expectations, especially during market downturns.

It is important to be consistent, transparent, candid and well-informed during these times. As Madden said, “Investors do not trust, nor do they appreciate cheerleader investor relations teams where it’s always sunshine and roses.” Be transparent and pragmatic about the current situation and future trends. Focus on the pipeline and acknowledge tough situations. Tie those quarterly results back to long-term objectives. And avoid commenting on areas where expertise or knowledge about the markets and their impact on valuations is lacking.

Sustainable finance and ESG Too often, sustainable finance and ESG are used synonymously, but they are not the same. Sustainable finance is under the umbrella of environment, social and governance (ESG). Governance has been a part of most organizations for a long time, but environmental and social issues are relatively new evaluation frameworks. All investors can apply the underlying ESG principles to manage risks and identify opportunities in their portfolios.

Risk management and internal controls Risk awareness and management should be integral to the decisionmaking process, rather than a back-end compliance step. Make it part of the company culture and integrate it into the entire organization.

Given technological advances, particularly in AI, managing security and regulatory oversight at any firm is crucial, especially in mitigating third-party dependencies.

For example, Fiera Capital integrates ESG principles into every stage of the investment process and has strengthened its reporting on ESG by focusing on each aspect separately and finding opportunities to invest in projects that align with ESG objectives and therefore create long-term value.

Actionable insights While it’s good to know the key trends, what is more crucial is learning how to prepare for them in terms of anticipating market movements, managing investor expectations and implementing risk management controls. Some actionable insights are summarized below.

Financial risks to anticipate and manage All the trends discussed above are important, but what types of financial risks do they pose? Quite often, market volatility, economic inflection points, liquidity disruption and balance sheet strength are tested. It is essential to understand exposures, manage potential asset and liquidity duration mismatches and have access to reliable funding sources. Stress testing balance sheets, especially for shortterm horizons, is key to managing against dynamic market shocks. As markets undergo various cycles, companies must be willing to adapt to innovations and developments.

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Portfolio management and currency risk Increasing portfolio returns and managing portfolio risk can be achieved by diversifying across geographies and asset classes.

Private markets and real assets can be a good source for managing currency risk and hedging against inflation, as they can be purchased with local or foreign currency and managed with local expertise, while the income from them can be immediately converted into a more stable currency. At Fiera Capital, dedicated portfolio managers, each focused on their strategy, bring expertise that allows them to create value across the full spectrum of investment solutions.

Additionally, sustainable finance and ESG can be useful and material factors in influencing risk and opportunities of a given investment.

AI could be a valuable tool to help understand the unstructured data in this space. All these actions collectively contribute to making better decisions.

Investors do not trust, nor do they appreciate cheerleader investor relations teams where it’s always sunshine and roses.

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

Conclusion Global markets are constantly changing, and geopolitical situations are currently playing a bigger role in key decisions. AI and technological disruptions are simply adding to the risks. But with robust processes, strong investor relations, good decision-making, the right use of AI and adaptability, investors can achieve sustained growth in their portfolios over the long term.

Firms need to reassess their global footprint and adapt their services and product offerings to be more competitive and effective in the markets in which they operate.

Angha Gupta, CFA, is a senior analyst at S&P Global Ratings.

She holds an MBA from Ivey Business School and is an FSA Credential Holder from the IFRS Foundation. She is vice-chair of the corporate finance committee at CFA Society Toronto, a member of the editorial committee at CFA Society Toronto and events director at Ascend Canada.

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BOOK REVIEW

Web3’s future: The promise, pitfalls and coming shakeup in finance

By Ryan Sheriff, CFA, CAIA, MBA

Why Web3 matters It’s no surprise to see Alex Tapscott’s Web3: Charting the Internet’s Next Economic and Cultural Frontier on bestseller lists. It is set against today’s backdrop of cryptocurrencies revisiting all-time highs and artificial intelligence (AI) enthusiasm buoying markets. Tapscott, an established voice on blockchain and digital assets, distills interviews with more than 50 practitioners into a clear thesis: we are entering the internet’s third era.

Web1 was a “read” model of static websites.

Web2, today’s dominant paradigm, became “read-write,” enabling users to contribute content. The next phase, Web3, Tapscott contends, is “read-write-own.” With digital property rights enabled by blockchain, users will own the content and data that define their online lives. That shift, he argues, will realign incentives across the economy, moving power from traditional banks, payment rails and social media platforms toward users and builders of a more open internet. He extends the vision further, examining how tokens, smart contracts, decentralized autonomous organizations and the metaverse are not simply curiosities, but components of broader economic and cultural shifts.

Linking the future to the past Because Web3 is just beginning to develop, some concepts discussed in the book may be abstract to readers at first pass.

Tapscott eases the learning curve by linking tomorrow’s innovations to familiar precedents. The book nods to Steve Jobs’ embrace of skeuomorphism, a design principle that uses recognizable analog elements to make novel technology feel

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familiar. Early personal computers used floppy disk and trash can icons to signal saving or deleting files. Similarly, Tapscott uses history to make Web3 legible. He frames digital property rights against the foundational role land ownership played in the Industrial Revolution. He puts non-fungible tokens (NFTs) in context by noting the inventions of the lithograph and phonograph, 19th century breakthroughs that democratized access to media. History doesn’t repeat, the book reminds us, but it does rhyme, and those rhymes make the abstractions tangible.

Implications for finance professionals For financial services, the implications of Web3 could be profound. The book goes beyond cryptocurrencies, stablecoins and central bank digital currencies, already present in global transactions, to forecast disruption to the industry’s core functions.

The throughline is disintermediation: peer-to-peer transactions replacing layers of gatekeepers. In decentralized finance, lenders aren’t banks but smart contracts that match borrowers and liquidity providers. Automated market makers could

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replace aspects of stock exchanges and clearinghouses. Token-based crowdfunding nibbles at the edges of traditional venture capital and private equity.

In the Web3 era, the role of finance professionals will shift from product gatekeepers to innovation leaders, those who can harness new technologies and infrastructure to create value for increasingly empowered clients. For executives, the message is clear: there is disintermediation risk if you stand still, and real advantage if you lead.

From theory to practice Much of this can sound fantastical. To be sure, history warns against unwavering exuberance. Overhyped technologies like Sony Betamax, Microsoft Zune and the BlackBerry Storm illustrate how promising innovations can falter. Tapscott recognizes this and outlines eight potential “showstoppers” that could slow or derail Web3’s progress. Power consumption is already a material concern, especially as computation demand surges across the tech ecosystem. The reactions of incumbents – governments, social media platforms, banks and regulators – remain uncertain and could shape market structure as much as technology does. The challenge of selfcustody, highlighted by the collapse of FTX, a prominent digital assets firm, underscores operational and fiduciary risks. Tapscott doesn’t claim to have every answer, and not all solutions are fully developed. However, the book earns credibility by surfacing the hard questions alongside the bold claims.

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

In the Web3 era, the role of finance professionals will shift from product gatekeepers to innovation leaders, those who can harness new technologies and infrastructure to create value for increasingly empowered clients.

An informative primer for forward-looking professionals Web3 is still largely conceptual. Yet Tapscott makes a credible argument that digital property rights and open-source protocols can address Web2’s misaligned incentives and unlock new markets, particularly where financial frictions are highest. The book is not a breezy read. While the jargon is generally within reason, some passages

invite a second read to fully absorb the implications. The payoff, however, is worthwhile. For leaders in investment management, asset management and banking – indeed, for any executive navigating digital transformation – this is an insightful look around the corner. You don’t need to be a Bitcoin maximalist to appreciate the asymmetric benefits of understanding technologies that, if they scale, could reshape finance and beyond.

Ryan Sheriff, CFA, CAIA, MBA, is a senior director on Manulife’s Global Manager Research team. He has over 12 years of experience in portfolio management and investment due diligence, including directing allocations across a range of public and private markets.

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AWARDS

Hillsdale Investment Management – CFA Society Toronto Research Award:

‘Bay Street Meets Machine Learning: Predicting Stock Risk Premium’

By Rossa O’Reilly, CFA

The winners of the 2025 Hillsdale Investment Management – CFA Society Toronto Research Award are Najah Attig, professor of finance and chair of the department of finance, Dalhousie University, and Chahine Attig, data science engineering student at École Nationale de la Statistique et de l’Analyse de l’Information (ENSAI), France, for their research paper titled Bay Street Meets Machine Learning: Predicting Stock Risk Premium.

Objectives of award winners’ research The winning paper provides one of the first comprehensive academic evaluations of machine learning techniques for forecasting equity risk premiums in Canadian capital markets. Compared to U.S., European and Chinese markets, Canada has seen limited application, despite the distinct structural, liquidity and informational characteristics in the Canadian market. Markets in Canada are dominated by smallcap and value stocks with greater information asymmetry, market frictions and liquidity constraints, which pose unique challenges and opportunities for predicting returns. These highlight the need for advanced modelling approaches beyond traditional linear methods.

2) M onthly long-short portfolios based on machine learning forecasts generate average excess returns exceeding one per cent, with Sharpe ratios above 0.75, more than double the linear benchmark’s Sharpe ratio (about 0.30). Annualized returns exceed 20 per cent, with Sharpe ratio approaching 0.9, demonstrating substantial economic gains.

3) P redictability is strongest in small-cap and value stocks, which dominate the Canadian equity market and exhibit frictions such as low liquidity and informational inefficiencies.

Machine learning models effectively capture persistent alpha opportunities in these segments.

4) S tocks with elevated net anonymous buying and greater broker-level order flow dispersion show stronger return predictability. Including these variables improves monthly portfolio returns by 60 to 80 basis points with Sharpe ratios near or above 0.9 when combined with flexible machine learning learners. This highlights the value of integrating informed trading proxies into forecasting.

The researchers address two key questions: 1) Can machine learning models improve Canadian stock return forecasts compared to classical linear benchmarks?

2) Do patterns in anonymous trading – where traders’ identities are concealed to prevent information leakage or market speculation – and variations in brokers’ anonymous trading activity help predict stock returns?

Findings of study The researchers’ key findings are: 1) M oderately flexible, non-linear models, especially XGBoost1 and mid-depth neural networks, outperform deeper neural networks and traditional linear models in forecasting Canadian stock returns.

5) L iquidity, bid-ask spreads (an informational asymmetry proxy) and trading volume influence forecast accuracy. Small-cap stocks, which are more affected than large-cap stocks by microstructure inefficiencies and fast-moving fundamentals, benefit most from non-linear machine learning models.

Large-cap returns are driven more by systemic risk and capital structure, where regularized linear models suffice.

6) P enalized linear models excel in liquid, large-cap universes by providing stable, interpretable forecasts, while illiquid, less efficient segments gain from non-linear methods like gradient boosting and neural networks. This nuanced insight guides model selection in practice.

XGBoost is an open-source machine learning library based on the gradient boosting algorithm that excels at classification, regression and ranking tasks.

(Definition provided by AI Overviews.)

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

From Left - Chris Guthrie, CFA, President and CEO, Hillsdale Investment Management Inc., Najah Attig, PhD., Professor of Finance and Chair of the Department of Finance at Dalhousie University, Canada, Harry Marmer, BBA, MBA, CFA, Executive Vice President, Partner, Hillsdale Investment Management Inc.

Implications for practitioners For practitioners, the study confirms that machine learning techniques provide powerful tools to overcome limitations of traditional forecasting models, particularly under constraints such as long-only mandates common in Canadian funds. Machine learning’s ability to uncover non-linearities and complex predictor interactions is critical in a market characterized by data complexity and frictions.

The researchers’ evaluation emphasizes out-of-sample performance and economic relevance through portfolio backtests, aligning with industry standards for robust, implementable forecasting solutions.

Their findings advocate for a segmented approach to machine learning model development: simple, regularized linear models are effective in liquid, large-cap stocks, while sophisticated machine learning models are better suited to small-cap, value and less efficient segments.

Incorporating microstructure data, especially anonymous order flow metrics, emphasizes the growing importance of alternative data sources. As financial markets become increasingly complex and data-rich, non-traditional inputs will become central to adaptive, evidence-based investment decision-making.

Conclusions The authors highlight that machine learning is emerging as a powerful technology that can enhance Canadian equity investing by extracting economically meaningful signals overlooked by traditional models.

Machine learning presents a promising frontier for improving return predictability and portfolio performance in Canadian capital markets.

By exploiting rich firm-level data, macroeconomic variables and novel microstructure signals, machine learning models appear to deliver substantial gains over traditional forecasting methods.

Predictability is most pronounced in small-cap and value stocks, where market frictions are significant, and anonymous trading imbalances reveal unique insights into informed trading behaviour. ©

“This winning paper shows some promise in applying machine learning methods to extract higher dimensional signals from the Canadian stock market,” – Chris Guthrie The authors encourage academics and practitioners to embrace machine learning not only for forecasting improvements but also for deepening understanding of market mechanisms and investor behaviour. Advancing machine learning interpretability tools to better connect data-driven insights with economic theory will be crucial for developing robust and adaptive investment strategies in Canada’s evolving market environment and beyond.

The researchers note that machine learning is not a substitute for economic theory but a complementary tool, particularly useful in high-dimensional, high-noise settings where conventional models struggle. While their analysis focuses on the Canadian equity market, the insights may also apply to other contexts, including emerging markets with greater structural inefficiencies and microstructure frictions. As financial data grows more complex and heterogeneous, machine learning offers a useful addition to both academic asset pricing research and applied investment strategy.

More broadly, the researchers’ findings contribute to the discussion on the integration of machine learning in addressing emerging questions in finance, including climate risk pricing, ESG-related mispricing and the role of retail investor sentiment and algorithmic trading in return dynamics. They highlight that future research should focus not only on improving predictive accuracy but also on interpreting machine learning-generated signals and linking them to underlying economic mechanisms. Such efforts can help bridge the gap between datadriven inference and theory-consistent modelling, supporting a more rigorous and informed application of machine learning techniques in financial economics.

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AWARDS

As financial markets become increasingly complex and data-rich, non-traditional inputs will become central to adaptive, evidence-based investment decision-making.

The award judging panel commented, “Running a horse race of various machine learning techniques, the winning paper finds that moderately flexible machine learning models consistently outperform deeper architectures and linear models in enhancing return forecasting and portfolio construction in Canadian equity markets.

The judging team commends the authors on the fact that the research is actionable, makes use of the latest numerical techniques and that the analyses were performed in a Canadian context.”

Chris Guthrie, CEO of Hillsdale Investment Management, commented, “Applications of machine learning methods to portfolio management and investments have grown in popularity in both academia and industry, but very few have focused on Canadian markets. This winning paper shows some promise in applying machine learning methods to extract higher-dimensional signals from the Canadian stock market.”

The Hillsdale Investment Management – CFA Society Toronto Investment Research Award is open to researchers globally who conduct research related to Canadian capital markets, including both academics (e.g., professors and students) and practitioners.

Author(s) of the winning research paper are awarded C$10,000.

Research papers are reviewed by a panel of CFA charterholding investment experts to ensure they align with the rigorous values and standards embodied in the CFA designation.

Rossa O’Reilly, CFA, is a past chair of CFA Institute, past president of CFA Society Toronto and former managing director of institutional equities at CIBC World Markets Inc.

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CHARTERHOLDER PROFILE

Charterholder Profile: Heather Cooke, CFA Chair, CFA Society Toronto

By Sebastien Davies, CFA

“The CFA charter is a solo pursuit, but a career is a team sport.”

When Heather Cooke, CFA, graduated from university, the Canadian economy wasn’t doing her any favours. With a recession in full swing and no finance connections in Toronto, she had to create her own opportunities from scratch. Thirty-five years later, she’s reached chief investment officer heights and is about to take the helm as chair of CFA Society Toronto.

Cooke’s path through finance hasn’t been linear. She worked across consulting, asset management and alternatives before landing as CIO at a prominent family office.

Her appetite for learning new things and her belief that you’re never done growing professionally have remained constant.

Ask her what really matters (as we did), and she’ll tell you it’s also the people who’ve mentored her along the way and the community she’s helped build.

We caught up with Cooke to discuss how she achieved her chief investment officer position, why she dedicates her time to the Society and what she anticipates will be the next steps for the profession.

You’ve had a remarkably diverse career across consulting, asset management, alternatives and family office leadership. How has that shaped your outlook?

It’s been a huge part of my success.

When I graduated from Queen’s, it was during a recession, and I didn’t have a financial network in Toronto. I had to hustle

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to find an opportunity, and I started in retail brokerage. About 14 months in, I realized it wasn’t the right cultural fit, so I pivoted to asset management.

At Diversified Fund Management, which later became Northern Trust, I worked my way up through performance measurement, manager research and portfolio management.

Because we built multi-manager solutions across asset classes, I got exposure to Canadian and U.S. equities, fixed income, real estate, hedge funds and private equity. That broad base of experience was invaluable.

I always had a stretch goal of becoming a chief investment officer (CIO). To achieve this in a multi-asset environment, you need to develop skills across various areas. So, each career move for me was about adding new capabilities, whether it was de-risking strategies at Mercer, alternatives at Fiera or building institutional-quality investment solutions for a family office.

You’ve said that being a CIO is really about problem-solving.

Can you expand on that?

Coming out of school in a recession built up my resiliency. You had to figure things out.

To me, a CIO is really a chief problem solver.

In the early part of your career, you’re a “doer,” then as you progress, you need to become more of a “thinker” and eventually a “sayer,” which involves managing, influencing and communicating effectively.

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

Heather Cooke, CFA, Career Highlights • Former chief investment officer, at a Family Office • Deputy chief investment officer and senior vice-president, Private Alternatives, Fiera Capital • Senior leadership roles at Unigestion Asset Management, Mercer Global Investments, Rogerscasey and Northern Trust Global Investments • 35 years of experience across outsourced chief investment officer, consulting, asset management and alternatives

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CHARTERHOLDER PROFILE

What do you see as Toronto’s role in the global CFA community?

In the early part of your career, you’re a “doer,” then as you progress, you need to become more of a “thinker” and eventually a “sayer,” which involves managing, influencing and communicating effectively.

To use a sports analogy: Wayne Gretzky said to skate where the puck is going. As a CIO, you must anticipate where markets, asset classes and risks are headed. That means always learning, adapting and staying curious.

What role have mentors and networks played in your journey?

The CFA exams are a solo pursuit. You study and pass them on your own. But a career is a team sport.

My pivotal mentors were at Diversified Fund Management. Bob Mitchell and Mike Gallimore gave me stretch assignments and showed me both the client-facing and technical sides of the business. I often called Bob my “industry dad.” They instilled the importance of fiduciary duty and clientoriented solutions.

 FUN FACTS: Education: Bachelor of commerce, Smith School of Business, Queen’s University First job: Retail brokerage at Dean Witter Mentors: Bob Mitchell and Mike Gallimore at Diversified Fund Management Personal motto: “People may not remember what you say, but they will remember how you make them feel.”

Be kind and pay it forward.

Sports analogy she lives by: “Skate where the puck is going.”

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Equally important has been my peer network. In the early days, there weren’t many women in senior investment roles, so we built our own community through an informal group called Ladies in Pension Services, or LIPS. That network gave me support and collaboration, and many of those relationships remain lifelong friendships.

You’ve been deeply involved with CFA Society Toronto for over a decade.

What motivated you to volunteer?

At a certain point, I realized my resume didn’t include volunteerism. Education has always been important to me. My dad was a professor, and my mom always emphasized learning as something that can’t be taken away. So, I decided to give my time to the cause that had helped me most professionally, CFA Society Toronto.

I joined the risk management and alternatives committee more than 10 years ago. Volunteering gave me access to content knowledge, networks and leadership training. We eventually merged four committees to form the institutional asset management committee, and I chaired that group, which ran flagship events like the annual pension conference.

Toronto is a hub for major banks, insurers and pension plans, and CFA Society Toronto is the largest society globally, with over 11,500 members. We punch above our weight relative to Canada’s population, and we’ve been recognized globally for our contributions.

Our mission is to provide high-quality continuing education and community.

The Institute grants the charter, but the Society provides the grassroots connection through events, networking and professional development. Something as simple as our monthly coffee chats, called Brewing Connections, can be transformative.

Newcomers to Canada, who may not know anyone, can find an instant community through the Society.

What is your vision for CFA Society Toronto during your term as chair?

Our mission is to remain relevant for members at every stage of their career.

The CFA charter is the starting point, but professionals need continuing education, a trusted community and a place to grow as the industry evolves. Membership empowers you to thrive at every stage of your career.

Right now, every strategic conversation we have includes artificial intelligence. We need to think about how to use these tools to augment our work and ensure our members understand their impact. But equally important is preserving the human side of finance, which relies on trust, ethics and judgment.

I see the Society as a home team. Whether it’s someone new to Canada finding their first professional connections, a seasoned professional looking for thought leadership or to give back, or a new member who wants Later, as a director-at-large, I led the Annual to build skills and find mentors, we want to Investment Dinner. Those experiences built be that trusted hub. Ultimately, it’s about leadership skills outside of work and expanded helping our members adapt, stay curious my network. That progression ultimately led and continue building meaningful careers at me to the vice-chair role and now chair. For every career stage in a changing world. me, it is true that CFA Society Toronto’s value compounds with participation.

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

You’ve also worked extensively in environmental, social and governance (ESG) and sustainability. How do you view its role in investing today?

I prefer to call it sustainable long-term investing. ESG became too political and too focused on exclusion, which isn’t the point. At Fiera, I worked across 26 investment teams to integrate sustainability into processes.

For me, it’s about materiality. Environmental, social and governance factors are risks and opportunities that affect long-term value.

For example, in real estate, energy efficiency directly impacts operating costs and returns.

Governance has always been fundamental.

These are not box-checking exercises, they’re integral to being a long-term, multigenerational investor.

The key is to dig under the hood. Some firms do this well; others use it as a marketing tool.

You must distinguish between the two.

Looking ahead, how do you think AI and new technologies will shape the profession?

Every strategic conversation we have as a board involves AI. The question is how to use it to augment, not replace. There’s a difference between point changes, like using AI to take notes in this interview, and system changes, where it fundamentally alters processes.

AI can help with efficiency, pattern recognition and shortening lags in areas like private markets reporting. However, AI looks at the past, and we know past performance is no indication of future results.

Most importantly, it doesn’t replace trust, judgment or human relationships. Ours will always be a human business. As I like to say, it’s not survival of the fittest, it’s survival of the kindest. Trust and ethics remain the foundation.

What advice do you give to younger professionals?

Be curious and collaborative. Get involved.

It’s a team sport. Stay open and keep your worldview wide. And always be highly ethical.

You can spend years building your credentials and networks, but a single unethical decision can undo it all.

Ultimately, our business is about trust.

That’s also why I believe the CFA designation matters so much. It represents a gold standard of ethics and professionalism.

Sebastien Davies, CFA, works at Aquanow, a leading digital asset infrastructure firm, where he focuses on venture investing and private credit.

He has prior experience in institutional capital markets and frequently writes about the intersection of finance and technology. His current work explores the real-world applications and limitations of AI across financial services.

Global X Investments Canada Inc. (“Global X”) is a wholly-owned subsidiary of Mirae Asset Global Investments Co., Ltd. (“Mirae Asset”), the Korea-based asset management

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entity of Mirae AssetToronto.

Financial Group.

Globalreserved.

X is a corporation under the laws 2025 of Canada and is the manager, investment manager and trustee of the Global X Funds. 17 2025 CFA Society All rights Theexisting Analyst | Winter ©2025 Global X Investments Canada Inc. All Rights Reserved.

AI WATCH

Radical Ventures and the rise of Canadian AI

By Ria Patel, CFA, CPA, CA

Canada’s standing in the field of artificial intelligence has strengthened recently, driven by substantial institutional capital flowing into the sector. Radical Ventures, founded in 2019, exemplifies how a dedicated AI venture capital fund, backed by CPP Investments, has become deeply rooted in Canada’s flourishing AI ecosystem and strategically positioned Canada as a leader in the AI investment landscape.

This article provides an overview of CPP Investment’s paper, Seeding the Future: Radical Ventures and the Rise of Canadian AI.

The rise of Radical Ventures Radical Ventures is the brainchild of Jordan Jacobs and Tomi Poutanen, two Torontobased entrepreneurs, whose vision was to establish North America’s first dedicated AI venture capital fund after the sale of their company, Layer 6, to TD Bank in 2018. They have been deeply ingrained in Canada’s AI-related institutions. Their noteworthy contributions include being at the forefront of launching both the Vector Institute and Creative Destruction Lab in Toronto, establishing Toronto as an AI hub in Canada.

The founding of Radical coincided with a pivotal moment for Canada’s AI landscape. While Canadian universities and research institutions had long contributed foundational work in the field of AI, the venture capital infrastructure in this country was underdeveloped. Radical’s goal was to bridge this gap by raising a US$325 million fund, nearly triple the size of the average Canadian venture capital fund at the time, and focus on investing exclusively in AI-related businesses.

Radical Ventures has quickly evolved from a concept to a global presence since its launch in 2019, operating in Toronto, San Francisco and London, with US$2.5 billion in assets under management.

effective monetization of their developments.

Additionally, the founders also have access to a network of professionals in the industry with business acumen and technical expertise, which serve as key enablers of success in a competitive market.

AI investments and venture capital

The portfolio of companies seeded by Radical ventures includes ground-breaking technologies. Among Radical’s most notable investments is Cohere, a Toronto-based company specializing in large language models for enterprise. As of 2025, Cohere is valued at US$5.5 billion. Other companies in their portfolio include:

The AI-focused venture capital space has seen rapid growth, with AI startups capturing 36 per cent of global venture capital funding in 2024, up from 16 per cent in 2019. This translates to a five-year increase from US$54 billion to US$137 billion in AI-specific funding.

Amid this boom, Radical faces the challenge of rising valuations of target investees, fueled by market demand, which can make it difficult to maintain disciplined capital deployment. According to Jacobs, Radical maintains a competitive advantage by being actively involved in shaping the success of the companies it invests in, through the Velocity platform. The Velocity platform provides founders of companies that Radical invests in with access to support for hiring, technology infrastructure and aid in the

•A spect Biosystems: Uses 3D bioprinting for regenerative therapies • Waabi: Develops AI-powered self-driving trucks • Hebbia: Builds AI agents for legal and financial data analysis • Intrepid Labs: Accelerates drug development using machine learning and robotics

Radical faces the challenge of rising valuations of target investees, fueled by market demand, which can make it difficult to maintain disciplined capital deployment.

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

Institutional capital flows into AI CPP Investments anchored Radical’s first institutional fund with a US$50 million commitment, later increasing its total investment to US$280 million.

CPP Investments is one of the largest pension funds in the world with US$421 billion in assets. It backed Radical Ventures due to a longer investment horizon with a mandate that allows for investment in alternatives.

CPP Investments views AI as a transformative economic force and a driver for productivity and growth in the long term. CPP Investments recognized the wealth of technical expertise and access to talent networks available to Radical as key enablers in driving innovation and growth in the long term, thus supporting Radical from its very inception. In Canada, there was a lack of growth-stage capital available for young AI firms to flourish.

Radical bridged this gap by leveraging Canada’s relatively favourable immigration

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policies and the presence of strong STEM talent in Canada. Radical has also become a strategic knowledge partner for CPP Investments, offering insights into emerging technologies and market trends.

Radical Ventures exemplifies Canada’s potential to lead in AI innovation and has positioned Canada as one of the global hubs for transformative technology by building sustainable ecosystems for AI, making strategic investments and forming global partnerships that will pave the way for future entrepreneurs.

Ria Patel, CFA, CPA, CA, is a leader focused on enterprise risk management with a decade of experience in banking.

She brings a strategic and analytical lens to risk governance. She is also an avid reader and a fitness and nutrition enthusiast.

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

Among Radical’s most notable investments is Cohere, a Torontobased company specializing in large language models for enterprise.

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RESEARCH

Resilience, not retirement: Rethinking the future of financial behaviour

By Ed Ho | Featuring Kelly Peters, FICB, MBA, global behavioural economics leader & partner, Deloitte

A new frontier for behavioural finance Behavioural finance was born in a world that believed investors were rational.

Half a century after Daniel Kahneman and Amos Tversky dismantled that idea, most professionals in finance accept that biases such as loss aversion, overconfidence and anchoring shape decisions as surely as balance sheets do.

Yet for Kelly Peters, one of the world’s leading practitioners of applied behavioural science, the real work of the field is only just beginning. “We’ve spent decades studying what people get wrong about money,” she says. “Now we have to ask how we think about our own thinking.”

Peters has led hundreds of field experiments that apply psychology directly to financial practice. These include redesigning product disclosures so that investors actually read and understand them and retraining advisors to frame portfolio discussions in ways that reduce emotional decisionmaking. One experiment asked clients to explain the reasoning behind their previous investment choices before reviewing performance results; this simple act of reflection dramatically increased their longterm adherence to strategy. Such evidence suggests that the greatest gains often come not from introducing new products, but from enhancing the way people think through their decisions.

The new risk: Complacency in thinking Finance has long treated risk as its central psychological problem. Peters agrees that risk remains fundamental but argues that a deeper hazard now undermines decisionmaking: complacency in our thinking.

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“We all recognize inertia in portfolios,” she says. “But where we really need to focus is complacency in how we think about our thinking.”

This matters because markets and minds both evolve quickly. When mental frameworks go unchallenged, investors cling to once-useful assumptions even as conditions change. The 2008 financial crisis, speculative bubbles and meme-stock volatility each revealed what happens when participants stop questioning the reasoning behind their choices.

Today’s environment heightens this risk.

Volatility stems from complex global forces: • Geopolitical uncertainty • Rapid technological disruption • Accelerating feedback loops of social media Misinformation spreads easily because algorithms reward engagement rather than accuracy. Automation increases speed and scale but can detach people from judgment, allowing models or autopilot settings to stand in for genuine evaluation.

Practising metacognition (stepping back to observe how we reach conclusions) helps counter these pressures. How can advisors and clients begin? Start with structured reflection. Before making a major decision, ask: What evidence supports this view?

What biases could influence it? Techniques such as journaling decision rationales or running “premortems” (imagining how a plan might fail) cultivate awareness of hidden assumptions. Over time, this habit improves both emotional control and analytical depth.

From retirement to resilience To counter complacency, focus on resilience.

Peters urges a reframing of financial planning itself, from “retirement planning” to “resilience strategies.”

The idea originated from observing younger investors facing a future that feels increasingly uncertain. Economic instability, climate anxiety and geopolitical tensions each erode confidence that long-term plans will hold. “Talking about retirement in that context feels almost naive,” she says.

Traditional milestones such as buying a house or retiring at 65 now seem less relevant. Instead of promising “freedom 55,” advisors can help clients build resilience for whatever future may come. This shift is not merely semantic. It calls for a new kind of financial architecture that factors in employment disruptions, health shocks, reskilling, climate events and shifting definitions of meaning and purpose.

“Resilience means designing plans that can bend without breaking,” Peters explains.

A more difficult math To professionals used to deterministic models, this approach may sound uncomfortably open-ended, but Peters believes it plays to the strengths of CFA charterholders and institutional investors who already specialize in complex modelling.

“Setting a retirement goal is simplistic and out of touch,” she says. “The future demands a more difficult math, and who better than Chartered Financial Analysts to do advanced modelling at the individual level?”

Scenario analysis becomes a behavioural exercise rather than a purely actuarial one. When advisors walk clients through hypotheticals such as a job loss, market

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

iStock.com/Daenin Arnee

downturn or family change, they uncover not only the financial impact but also the client’s emotional responses. The insight lies in seeing how people interpret and cope with uncertainty. The aim is less about calculating an exact savings target and more about testing flexibility, resilience and true risk tolerance.

Generational realities and the meaning of time The shift from retirement to resilience also reframes how we understand time, the third theme Peters explores. For older generations, time was the friend of compounding. For many younger investors, it feels like a threat. “Some have already surrendered on the idea of retirement,” Peters notes. “They see it as unrealistic. But resilience, being ready for whatever future may come, gives them a reason to save.”

This idea draws on the principle of loss aversion in a positive way. By framing saving as protection against the loss of future freedom or opportunity rather than as a sacrifice of today’s pleasure, advisors can motivate constructive behaviour. Resilience turns deferred gratification into agency.

It also reconnects long-term planning to short-term meaning. Clients who link future security with current purpose see saving not as postponement but as progress.

From nudges to narratives Behavioural science once focused on nudges: small environmental tweaks that guide better decisions. Peters believes the next frontier lies in narratives: helping people construct coherent stories about their financial lives.

“Nudges correct habits,” she says.

“Narratives change identity.” When clients begin to see themselves as resilient investors rather than fearful savers, their entire relationship with money changes.

This shift turns advisory conversations from transactions into dialogue about values, trade-offs and purpose.

Moving from nudges to narratives marks a broader evolution in behavioural finance, from simple heuristics toward metacognition and meaning. The goal is no longer just to help people avoid mistakes but to help them build self-awareness and resilience in a world that will never be certain.

For financial professionals, that may be the ultimate behavioural insight: in an age of algorithms, the most valuable asset is still wisdom.

Ed Ho, CFA, MSc, is an energy consultant specializing in strategy, policy and finance, focusing on the challenges and opportunities of the energy transition.

He is a candid storyteller with the goal of driving consensus through fact-based diplomacy.

The takeaway: Resilience as fiduciary ethic Peters’ vision does not discard the fundamentals of finance; it reanchors them.

Risk, return, diversification and discipline remain central, but the objective shifts from maximizing wealth to sustaining resilience across whatever futures unfold.

“We’ve spent decades studying what people get wrong about money,” she says.

“Now we have to ask how we think about our own thinking.” ©

It is a call to intellectual humility and moral imagination – qualities the profession will need as human and automated decision-making become more intertwined. “We can model volatility,” Peters says, “but we cannot model meaning. That is where advisors come in.”

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

What's Next?

For those who want to dig deeper into financial behaviour, explore these books recommended

by Kelly Peters: ➜ Happy money: The Science of Happier Spending

by Elizabeth Dunn and Dr. Michael Norton

➜ Thinking, Fast and Slow

by Daniel Kahneman

➜ The Why Axis: Hidden Motives and The Undiscovered Economics of Everyday Life

by Uri Gneezy and John List

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AI WASHING

AI washing: Signs, symptoms and solutions

By Sanaz Danielle Fotoohi, CFA, MBA, AFM

In this article, we provide a summary of the 2025 CFA Institute report AI Washing: Signs, Symptoms, and Suggested Solutions for Investment Stakeholders by Joseph Simonian, with the aid of supplementary papers, including Order from Chaos: How Data Science Is Revolutionizing Investment Practice by Joseph Simonian, Marcos Lopez de Prado and Frank J. Fabozzi.

An increasing number of global financial institutions are using or considering using artificial intelligence (AI) for data analytics, trading, portfolio optimization, portfolio management, pricing, risk management and underwriting activities. Many have reported using generative AI to replicate data (synthetic financial time series, natural language processing, text and scenario generation) for practical applications. Enthusiasm and perceived benefits of AI applications, however, have led to a growing risk of “AI washing.”

This is a risk to asset owners conducting manager search and due diligence. Therefore, it is essential that clients adopt the appropriate methodology to determine whether a firm’s claim of AI-driven investment processes and products is genuine and value-added or merely commercially motivated and exaggerated. In the following sections, we define AI washing and its driving forces and develop a set of questionnaires to raise awareness about AI washing and provide guidance to institutions engaged in manager selection and evaluation.

Simonian defines AI as a computational and/or statistical tool or system that exhibits an enhanced, extended or more effective replication of some well-defined aspects of human cognition. This is referred to as “weak AI.” This definition includes supervised and unsupervised machine learning, reinforcement learning, natural language processing and the various forms of so-called generative AI. “Strong AI,” in contrast, refers to a replication of generalized human intelligence, including emotions, common sense reasoning and a strong ability to contextualize.

AI washing refers to the use of buzzwords, marketing strategies and exaggerations of the true presence of AI in companies’ business activities, leading to client, regulator and investment community confusion, skepticism, distrust and potential ethical concerns.

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The Role of Data Science in Finance and Investment Practice by Joseph Simonian, Marcos López de Prado and Frank J. Fabozzi

Why do companies engage in AI washing?

The risk of competitor firms moving faster to implement genuine machine learning and AI capabilities, as well as fear of missing out, can lead firms to engage in AI washing. The adverse effect of AI washing is compounded when investment firms are also reluctant to reveal proprietary processes and use the “secret sauce” defence when defining their methodologies.

What is AI and AI washing?

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“Investment practitioners are increasingly turning to data science and machine learning (ML) to enhance analytics, support decision-making and improve predictive modelling. Unlike traditional methods such as ordinary least squares (OLS), ML can process both structured and unstructured data and capture non-linear relationships in markets. Given the complexity of financial markets — shaped by human intentionality — ML and data science can address the idiosyncrasies in financial data, adding significant depth to investment research.”

AI and machine learning algorithms can enhance risk management, trading and portfolio management. However, the practical implementation of AI in asset management presents additional challenges, as relevant data in investment management is typically more limited, more volatile and less uniform than in other areas of finance.

An example of this challenge is predicting asset prices with far fewer observations, with drivers of asset behaviour often more complex than the drivers of other types of financially relevant behaviour.

The proper application of AI in portfolio construction, risk management and trading requires focus, expertise and dedicated resources. Genuinely adopting new technologies and methodologies

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

iStock.com/FG Trade

requires specialized talent and resources, which many firms struggle to procure due to costly and time-consuming hiring processes.

From a commercial perspective, adopting advanced technologies and methodologies can increase investment firms’ chances of attracting new business. At the same time, most professional investors already have well-developed investment processes that typically preclude them from making significant modifications to their existing procedures. For most mature quantitative firms, modifying their processes could risk potentially leading to unfavorable investment outcomes. To avoid paying a price for increased complexity, some engage in AI washing.

• How does your AI-driven model outperform simpler models? Can you provide a quantitative comparison of relevant performance metrics?

• What data sources are you using to train your model(s), and how do these sources integrate with the rest of your process, if at all? Are you utilizing alternative data sources, such as satellite imagery or sentiment analysis of earnings calls?

How can asset owners differentiate between legitimate AI technologies and inflated claims in the market?

A practical approach to evaluating the truthfulness of a firm’s AI claims is to inquire if the right personnel are working on AI projects.

In the tech industry, leaders likely possess a great deal of expertise in AI, as the firm’s product is technology; otherwise, tech firms could negatively impact profitability. In contrast, the primary products of investment management firms are investment advice and asset management services, where the connection between technological innovation and product performance is less direct.

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Asset managers must be able to provide sufficient details about why and how they implemented a piece of AI technology in their process, what specific frameworks they used and what results or improvements they observed. This aligns with the ethical principles of transparency and the duty to clients, as outlined in the CFA Institute Code of Ethics and Standards of Professional Conduct.

To guide due diligence, Simonian proposes a set of questions designed to assess the credibility of AI claims, presented below from AI Washing: Signs, Symptoms, and Suggested Solutions for Investment Stakeholders by Joseph Simonian: • Can you specify what type of algorithm or combination of algorithms you are using and how it enhances the forecasting of asset returns?

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

robeco.com/active-quant Important information Marketing communication for professional investors only. Capital at risk.

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AI WASHING

Enthusiasm and perceived benefits of AI applications, however, have led to a growing risk of “AI washing.”

• What preprocessing and feature selection techniques are used to prepare the raw data for input into your model(s)? Do you use fundamental features, such as earnings surprise, price momentum or other signals and indicators? How do you preprocess the data before feeding the data into your model(s)? Do you standardize or normalize the input features, and what techniques do you use to handle missing data, outliers and limited datasets?

• Can you provide out-of-sample backtest results or cross-validation results using your model? Have you tested the model’s efficacy on bootstrapped or otherwise synthetic data? How does the model perform relative to simpler models, traditional benchmarks and equal-weighted portfolios?

• How do you validate the robustness of the models you develop? What precautions do you take to guard against overfitting? For example, how do you tune hyperparameters into your models? How do you monitor “model drift,” and what mechanisms are in place to retrain the models and/or adapt to shifts in the market landscape?

• How do you maximize model interpretability? Is it through model choice or post-implementation communications?

If the latter, can you give some concrete examples?

• Can you provide an example of a recent investment decision that was influenced by the model’s output?

How was the rationale for that decision explained to the investment team?

• What governance structures are in place to ensure the responsible use of AI firmwide? Do you have an internal AI audit process, and how often are the models reviewed for compliance with generally accepted standards and protocols?

• If you use outsourcing for some or all your AI technology needs, what processes are in place to ensure the quality and robustness of the services and products used in your investment process?

Protecting investors and safeguarding trust

Ratings that are

Ultimately, mitigating AI washing is about protecting investors and safeguarding trust in the financial industry’s adoption of emerging technologies. Financial firms selling financial products should adhere to the same standards of transparency that stakeholders, regulators, customers and the investment community demand from other investment products, and must refrain from exaggerating the use of AI technology and its success in the investment process. By asking relevant questions and embedding such scrutiny into the manager selection process, stakeholders, particularly customers and regulators, can not only minimize the risk of AI washing but also foster genuine innovation and trust in financial markets, ultimately achieving better investment outcomes.

Timely Trusted Transparent

Sanaz Danielle Fotoohi, CFA, MBA, AFM is a volunteer member of CFA Society Toronto's Strategic Content Committee, the Editorial Committee and a contributor to The Analyst.

Learn more

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

INVESTMENT INDUSTRY

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Toward a better understanding of multi-family offices in Canada

By Joe Chidley, managing editor, Canadian Family Offices

Family offices – private advisory firms that manage the financial and often non-financial affairs of ultra-high-networth families – are becoming an increasingly prominent force in the wealth management landscape.

Yet there remains little consensus on just how significant their presence is.

Estimates of the number of family offices vary widely. A recent report from Deloitte Private places the number of single-family offices at just over 8,000 globally, while other studies suggest figures ranging from 3,500 to 20,000. Despite the disparity, most agree that the family office ecosystem is expanding rapidly. Deloitte projects that family office assets under management will grow to US$5.4 trillion globally by 2030 – a 73 per cent increase from 2024 – putting them on par with hedge funds in terms of global financial influence.

While most studies focus on single-family offices, which serve individual families and often operate globally, multi-family offices (MFOs) – firms that serve multiple families – remain less well understood, particularly in smaller markets like Canada.

Reliable data on Canadian MFOs is scarce.

For example, in 2023, Canadian Family Offices published a list of 81 MFOs, though the actual number is likely higher. There is also limited industry consensus on how to define MFOs, including criteria related to assets under management, client net worth and services offered. Industry participants often disagree on what constitutes a “true” MFO. The sector encompasses a wide range of business models, ownership structures, service offerings and client asset levels.

Both single- and multi-family offices are growing in Canada, driven by factors such as intergenerational wealth transfer and the increasing concentration of wealth among high-net-worth households. According to Statistics Canada, the wealthiest 20 per cent of households hold nearly two-thirds of the country’s total net worth. Family offices offer meaningful career opportunities for

Industry participants often disagree on what constitutes a “true” MFO. The sector encompasses a wide range of business models, ownership structures, service offerings and client asset levels. ©

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

professionals in wealth management, which remains a core function of most such firms.

To foster greater understanding of MFOs, Canadian Family Offices has conducted a national survey for the past two years.

The latest edition, The Multi-Family Office Landscape in Canada 2025, was released earlier this month. It offers insights into MFOs’ services, size, client base and investment priorities, as well as the independence of their financial advice and the challenges and opportunities they face.

More than 70 MFOs from across Canada participated in the survey.

How high is “ultra high”?

The debate over what qualifies a family as “ultra-high-net-worth” is ongoing, with estimates ranging from $20 million to $100 million or more. Our survey, however, reveals that many Canadian MFOs serve families with significantly less wealth. One in five respondents reported that their average client net worth is under $15 million, while more than a third serve families with net worths between $15 million and $50 million.

The remainder cater to families with over $50 million.

We also asked about minimum requirements for assets under management. Nearly 40 per cent of MFOs set a minimum of less than $15 million, and 23 per cent set the threshold between $15 million and $50 million. At the higher end, about 14 per cent require assets under management to exceed $200 million, while 17 per cent reported having no minimum requirement at all.

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INVESTMENT INDUSTRY

More than financial managers The definition of a family office also hinges on the range of services offered. While wealth management is central to most MFOs, many also provide estate planning, legal and tax advice and financial education.

However, not all services are delivered in-house; outsourcing is common.

Deloitte projects that family office assets under management will grow to US$5.4 trillion globally by 2030 – a 73 per cent increase from 2024 – putting them on par with hedge funds in terms of global financial influence.

In our survey, the most frequently provided in-house services were financial education and governance, offered by more than 85 per cent of respondents. Other commonly internalized services include investment management and advisory, estate and succession planning, tax planning and philanthropy/social impact investing. Legal and insurance services are typically outsourced. Lifestyle management and concierge services – such as travel arrangements, major purchases and event planning – are rarely offered directly; 45 per cent of MFOs surveyed do not provide these services at all.

Interestingly, MFOs and single-family offices often collaborate. Nearly three-quarters of MFOs also serve single-family offices, particularly in areas like investment management, philanthropy, financial education, governance and estate planning. This suggests that single-family offices may not always be comprehensive “one-stop shops” and often rely on MFOs to supplement their offerings.

MFOs as “financial quarterbacks” One of the more contentious issues in the industry is how MFOs manage client investments and the degree of independence they maintain. Some argue that a “pure” family office should act solely as a fiduciary, offering advice while outsourcing all investment management. In practice, however, MFOs vary widely in their approach.

Our survey asked MFOs to position themselves along a spectrum from fund “manufacturers” to “distributors.” Nearly all outsource at least some fund management. About 44 per cent described themselves as financial quarterbacks, outsourcing all fund management. Nearly 20 per cent both outsource and manage in-house funds, while roughly 25 per cent follow a hybrid model, managing some funds internally and outsourcing others.

Only one respondent reported that their clients are exclusively invested in-house or by an affiliated financial institution.

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The Multi-Family Office Landscape in Canada 2025 survey is intended to be directional rather than definitive. Nonetheless, it highlights emerging trends such as the intersection of multi-family offices and single-family offices, the outsourcing of services and a strong commitment to independent investment management.

Clearly, the multi-family office sector in Canada is a dynamic and evolving part of the wealth management industry – one that investment professionals would do well to watch closely.

Joe Chidley is managing editor of Canadian Family Offices.

He was formerly a columnist for the Financial Post, editor-in-chief of Canadian Business magazine and senior writer for Maclean’s magazine.

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2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

FINANCIAL MODELING

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Trends and innovation in financial modeling: How AI Is redefining the modeler’s role Ian Schnoor, CFA, CFM

Financial models are the most important decision-making tools in finance. Like many professions, financial modeling now stands at an inflection point as artificial intelligence is transforming how models are built, tested and applied.

The financial modeling landscape is changing daily, and the next generation of finance professionals must understand the discipline of financial modeling and learn to lead teams that integrate human judgement, data analytics and AI tools to make informed decisions.

The core principles of financial modeling remain unchanged: A robust threestatement model links the income statement, balance sheet and cash flow statement to generate a forecast and forward-looking insight. What is changing is the toolkit available to the modeler.

This shift is a central focus of The ModSquad Pod, a new web series that I co-host with Paul Barnhurst, also known as the FP&A Guy, and Giles Male, founder of Full Stack Modeller and an accredited Master Financial Modeler. The premise of the series is to test, review and evaluate the growing library of AI modeling tools in real time. New tools

with big promises are released regularly, and understanding how AI can support our work and avoid pitfalls is essential for finance professionals.

Financial modeling in the age of AI: New tools, new challenges The past year has brought an explosion of AI-enhanced modeling tools. As we discuss on the ModSquad, most of these tools can “fill in the blanks.” That is, they are excellent at reading instructions, populating a schedule and even building a model.

However, the tools lack context: the ability to ask the right questions, validate results and tell the story of the business to guide confident decisions.

In October, Microsoft introduced Agent Mode, a tool within Copilot in Excel and Word. In Excel, Agent Mode is intended to

While AI can speed up the modelbuilding process, it cannot (at least not yet) connect stories and numbers, understand an industry or assess a company’s dynamics.

help users interact with their spreadsheets using natural language, performing multistep tasks that go beyond single formulas or charts. Unlike the Copilot chat interface (which gives suggestions or assists), Agent Mode directly edits or augments the Excel workbook by creating or modifying sheets and inserting formulas.

I tested Agent Mode, and the experience was remarkable: With English-language prompts, it could build a basic model in seconds. This is one of the wildest developments I have witnessed in my decades of modeling experience. Watching a machine generate a financial model on command is both exciting and unsettling.

Yet there is a caveat: These tools make mistakes, sometimes significant ones.

While AI can speed up the model-building process, it cannot (at least not yet) connect stories and numbers, understand an industry or assess a company’s dynamics.

Why modeling skills matter more than ever Strong modeling skills have never been more important. As AI tools become more powerful, finance professionals must sharpen their ability to question and validate the outputs.

You will have to challenge the AI around certain concepts: • Are the generated numbers accurate and reasonable?

• Does the model capture the right relationships and drivers?

• Are the assumptions aligned with reality?

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FINANCIAL MODELING

A financial model is about more than linking cells. A strong modeler should not spend all their time behind a screen. In fact, if half the work lies in building the mechanics of the model, the other half lies in the research executed before you even open your laptop.

AI can be a powerful ally – but only for those who already understand the fundamentals.

Ideally, you will interact with the AI tool like a collaborative colleague. A novice who relies solely on AI-generated output risks submitting models that are technically polished yet conceptually flawed. Modeling is a journey just as much as it is a destination.

It is about being informed about a company or an opportunity so that you can apply your insights effectively. Without proper understanding, the risk of serious errors and potential embarrassment is real.

Balancing power and responsibility The power and the risk of AI is a challenge that my financial modeling colleagues and I are navigating.

As new tools emerge, we rigorously test and push them, not only to see what they can do, but also to identify their gaps. Our findings

to date suggest that while AI can generate a model based on past financial data, it struggles with true foresight. I can’t ask the tool, “What do you think will happen?”

Therefore, adopting these tools responsibly means embracing a hybrid approach: Use AI to accelerate the mechanics, but rely on professional judgment and knowledge to check assumptions, interpret results and ensure the narrative is coherent and credible.

The model as a dynamic narrative A powerful financial model tells a story.

It illustrates where a company has been, where it stands and where it might go, with AI accelerating data preparation, historical schedules and sensitivity testing.

Yet model strategy remains a deeply human endeavour. AI cannot yet research the industry context or understand competitive dynamics or interview senior leadership. That responsibility rests with the modeler.

The professionals who thrive are those who use AI as a partner to accelerate technical work while retaining control over the strategy, the substance and the story.

Building leadership in the AI-enabled era Expanding the modeler’s skill set Finance leaders of tomorrow will need to have fluency in people management, technical skills and machine-generated insights. In addition to managing teams and outputs, professionals will have to learn how to design effective prompts, test the results and then integrate these components into their models.

These new abilities should complement, rather than replace, the fundamentals of financial modeling. Leaders who understand the nuances of financial modeling and can work in partnership with AI tools will be best equipped to guide teams and communicate insights.

Critical thinking and judgment Even as AI accelerates calculations, the most valuable human qualities remain: Curiosity, critical thinking and good judgment.

A financial modeler is more than someone who can build beautiful spreadsheets.

Venture off the beaten stock.

From private markets to the energy transition, we see things others miss.

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A great modeler is, at times, a listener, problem solver, coach, referee and communicator.

Financial modeling is not about finding “the right answer.” Rather, good models contain insights that shape how we explore possibilities. While AI can expand the breadth of that exploration, only we can decide which assumptions to test, which scenarios to prioritize and how to use our models to inform critical decisions.

Conclusion Financial modeling is the language of business storytelling. AI does not change that truth, it enhances it. I do not believe that financial modeling roles will disappear, but they may evolve.

To stay relevant, finance professionals must pair modeling excellence with fluency in AI, shaping how organizations evaluate opportunities, manage risk and chart their paths forward.

The future of modeling lies in the partnership between human insight and intelligent technology. Those who embrace that partnership responsibly will not only thrive as practitioners but also emerge as leaders.

Ian Schnoor, CFA, CFM is executive director at the Financial Modeling Institute.

Financial Modeling Institute and CFA Society Toronto Financial Modeling Institute is committed to preparing professionals for this evolving landscape supporting the next generation of finance leaders. The Advanced Financial Modeler (AFM) accreditation focuses on best practices to build world-class models that can be used as critical decision-making tools.

Our partnership with CFA Society Toronto reflects a shared mission to equip finance professionals with the technical, strategic and adaptive skills needed for the future. As the creators of the Financial Modeling Practical Skills Module for the CFA Programs, we look to ensure that professionals stay ahead.

About Financial Modeling Institute Financial Modeling Institute (FMI) promotes excellence and discipline in financial modeling through rigorous accreditation programs and thought leadership.

The Advanced Financial Modeler (AFM) accreditation is the only exam that requires candidates to build a three-statement financial model of a company from scratch under time pressure, demonstrating their ability to translate data into actionable insights.

For CFA Society Toronto members, the AFM offers a powerful way to build modeling expertise while preparing for an AI-enabled future.

To learn more about how CFA Society Toronto members can register for the AFM Program, visit www.cfatoronto.ca

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29

ADVOCACY CORNER

CFA Societies Canada Quarterly Update What’s new with advocacy at CFA Societies Canada?

Advancing investor protection, industry professionalism and market integrity across Canada, CFA Societies Canada focuses attention on pressing advocacy files dominating the regulatory agenda. Ensuring fair, equitable and sustainable outcomes for stakeholders is more important than ever. Through our growing relationships with policymakers and regulators, we are working on several important initiatives. Below is a summary of three areas where we have recently provided comment letters. To see the comprehensive catalogue of our commentary letters, visit us online at cfacanada.org/advocacy.

Published CFA Societies Canada comment letters CSA seeks feedback on proposed frame-work for binding dispute resolution The Canadian Advocacy Council (CAC) has submitted comments on the Canadian Security Administrators (CSA) Notice and Request for Comment 25-314, outlining a proposed framework granting binding authority to the Ombudsman for Banking Services and Investments (OBSI). The CAC strongly supports enabling binding decisions

by OBSI as a critical step in strengthening investor protection but raised concerns about the level of regulatory oversight proposed.

The CAC cautioned that requiring the breadth of proposed CSA approvals and oversight could add unnecessary costs and undermine OBSI’s independence, a key feature for maintaining public trust. Instead, the CAC recommends a more tailored approach, including oversight focused on governance standards and non-objections rather than line-by-line approvals.

The submission also reiterated the CAC’s past calls to raise the OBSI compensation limit from $350,000 (unchanged since 1996) to $500,000 with future cost-of-living adjustments and supported maintaining the current six-year limitations period.

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OSC proposes new restrictions on short sellers participating in offerings The CAC responded to the Ontario Security Commission’s (OSC) consultation on proposed amendments to Rule 48-501 regarding trading during distributions. The letter emphasized a data-driven, targeted approach that aligned with Securities and Exchange Commission (SEC) Rule 105 while being tailored to Canadian market practices (e.g., bought deals and market concentration).

Key highlights from the CAC’s submission include that the CAC: • Supported the OSC’s targeted, evidencebased amendments to Rule 48-501, aligned with SEC Rule 105 and calibrated to Canadian financing practices (e.g., bought deals) • Affirmed short selling’s important role in liquidity/price formation, while backing a focused restriction to curb offering-related arbitrage with potential for manipulation, with a five-day window and sensible exemptions (including at-the-market offerings and NI 45-106 s.2.42) • Encouraged ongoing monitoring and better data/transparency in securities lending to support surveillance and future policy development • Viewed the proposals as a well-calibrated response that addresses identified conduct issues, aligns with established U.S. rules and preserves legitimate trading activity ©

CSA NI 31-103 proposes ban on chargebacks to strengthen investor protection In response to the CSA’s consultation on proposed amendments to NI 31-103 regarding the prohibition on chargebacks in the distribution of investment fund securities, the CAC expressed strong support. The CAC welcomed the CSA’s proactive stance in addressing the inherent conflicts of interest posed by chargebacks and viewed the amendments as a natural extension of the prior ban on deferred sales charges. The CAC also urged regulators to investigate past use of such structures for potential breaches of client obligations. The CAC emphasized the need for continued regulatory scrutiny of compensation models that may misalign the interests of advisors and clients.

The CAC also suggested extending the ban to non-reporting issuer funds, all investment fund securities and fund-like securities, in coordination with other regulators.

Other letters filed: • Ontario proposes new capital-raising options for credit unions • CIRO proposes rule changes to clarify disgorgement authority for mutual fund dealers • OSC draft Action Plan for Truth and Reconciliation

2025 CFA Society Toronto. All rights reserved. The Analyst | Winter 2025

WELCOME NEW MEMBERS

Congratulations New Members September 4 - November 13, 2025

Who is CFA Societies Canada?

CFA Societies Canada represents the 12 Canadian CFA Institute Member Societies and, ultimately, Canadian CFA charterholders. CFA Societies Canada’s Canadian Advocacy Council includes investment professionals from across the country who review regulatory, legislative, and standard-setting developments affecting investors, investment professionals, and Canadian capital markets. CFA Societies Canada through its advocacy efforts strives to advance market integrity, transparency, and investor protection, and actively engages Canada’s securities regulators, self-regulatory organizations, industry associations, legislators, and other stakeholders through thoughtful leadership, direct engagement, and the publication of comment letters.

Have your say If you would like to participate in advocacy activity related to these letters or future policy and regulatory initiatives, provide comments on ongoing initiatives, or learn more about volunteer opportunities in advocacy, please contact info@cfacanada.org.

Follow CFA Societies Canada on LinkedIn.

Dare Lanre Adeyemo, CFA

Ka Yan Lo, CFA

Ronak Amit Agarwal, CFA

Philip Edward Mankowski, CFA

Bilal Alvi, CFA

Harmanjot Mann

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Igor Mirkovic, CFA

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Pablo Ferrin Castro

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Nathan Abeeku Greene, CFA

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Di Shi, CFA

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Qiang Liu, CFA

Weihao Zhao, CFA

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