The financial services industry has seen three significant changes in the past decade. The first was the emergence of financial planning as a distinct and separate discipline, resulting in two types of advice:
financial advice and product advice.

The second was the consolidation among banks, insurance and investment companies, which could soon give way to banks consolidating with banks, and then banks consolidating with insurance companies — all with the aim of increasing Canada’s global competitiveness.

And the third was the creation and establishment of the Mutual Fund Dealers Association, and the overall increase and growth of regulation as a self-generating business. This has resulted in a costly regulatory infrastructure issuing prescriptive directives without the benefit of valid advisor and consumer perspectives, as evidenced by the resounding outcry at the Ontario Securities Commission’s recent Investor Town Hall event.

Two elements seem to provide regulators with a blank cheque and unlimited scope to validate regulatory reach. Consumer protection is the proclaimed guiding value, even if the objective remains unfulfilled, and global competitiveness and efficiency is leveraged by today’s key players to argue for greater reach within the current model.

Advisors, faced with organizing their practices in this convoluted environment, need to consider questions such as:

> What is the nature of their business — financial planning, insurance, investments or comprehensive financial planning?

> Are they employees or independent sole practitioners?

> What model of compensation should they adopt?

> What kind of clients should they look for?

> How should they market their services?

> How should they recruit for their businesses?

> And how should they plan for their businesses’ succession?

Advisors need to acquire and maintain clients; manage expenses; grow revenue;
acquire knowledge and skills; and manage their compliance requirements. This is where associations such as Advocis help their members by preparing, promoting and protecting advisors.

One day soon we will wake up and The Next Big Change will have occurred. What will the world look like then?

The style of regulation in place could be paternal regulation that sees regulators pushing increasingly more prescriptive compliance processes onto dealers. This would require all advisors to report through dealers, and it would mean that neither dealers nor advisors would fare well in balancing their business objectives with their compliance responsibilities.

Or we may have professional regulation, in partnership with regulators, underpinned by professional principles; under this system, designations would be respected as commitments to professionalism and to governance as professionals. Regulators would rely on accrediting bodies to govern the financial advice component of the industry, thereby restricting their regulatory role to overseeing product integrity and transaction legitimacy.

Now let’s consider the structure of the regulation that could exist.

We could find ourselves in a situation not unlike that of today, in which regulators oversee financial advice-giving from different directions, without outright definition.
Advisors are ruled by multiple regulatory bodies that duplicate their efforts on behalf of companies and advisors, with each of the insurance, mutual fund and securities regulators viewing others as competitors.

Or we may see a system of rationalized regulatory bodies that recognizes that most advisors carry multiple licences and allows regulators to move to create common, harmonized processes. In its recently introduced regulatory framework, Advocis is championing a financial services council, integrating oversight of all three licences, made up of consumers, advisors and company representatives. In this scenario, regulators balance responsibilities between companies and professional bodies to the benefit of advisors, consumers and the industry.

Regulatory models can be principle-based, such as our insurance regulatory system, which works well and in which advisors and companies achieve uniform standards. Or they can be practice-based, such as the securities regulatory system, which is intrusive and can’t be said to be working well, in which advisors and companies lose effectiveness as they struggle with increasingly prescriptive requirements.

Regulators must introduce true
consumer-focused solutions. These solutions should ensure proactive client protection through professional advice givers, the soundness of products being offered to clients and establish restitution models that work because they are consumer focused and still objective.
Investors and shareholders must be assured that recent corporate governance issues that have plagued the market are being addressed by regulators in a meaningful way.

To achieve this, advisors and the associations that represent them will have to be heard and invited to the process to establish a realistic model. IE

@page_break@Steve Howard is president and CEO of Advocis.