Canada’s provinces should regulate financial planning, suggests a report released Monday by the Public Interest Advocacy Centre.

The report reiterates some of the long-standing problems with the lack of regulation for planners in most provinces, namely consumer confusion over planning credentials, and the potential for conflicts of interest and insufficient disclosure when it comes to implementing a plan through the sale of financial products.

It notes that consumers face an “alphabet soup” of financial planning titles, and that “These groups and designations are not clear to Canadian financial consumers and are largely ignored in the decision to use a financial planner.”

PIAC concludes that “the time appears ripe for the provinces to regulate financial planning in the public interest.”

It says that the model used in Quebec, with some minor adjustments, “appears to be the best way forward to protect Canadian financial consumers”.

In particular, it recommends that the title “financial planner” should be provincially regulated and restricted. “If this course were followed provincially, present financial planner self-regulatory bodies could play a role in preparing candidates for provincial registration and regulation, and possibly in setting provincial standards, by concluding mutual recognition agreements with provincial authorities setting up financial planning regulatory schemes.”

The report recommends that the regulation of financial planners should not be directly in the hands of the self-regulatory organizations, the Investment Industry Regulatory Organization of Canada and Mutual Fund Dealers Association, “as it may have the effect of institutionalizing the inherent conflicts of interest that exist when financial planners are compensated on the commission/referral fee method.”

It notes that IIROC has tried to create a rule governing financial planning, but that this has been “strongly resisted by the Canadian financial planning community”. And, it says that an alternative model, proposed by Advocis “unfortunately has not been pursued”; although it indicates that this model “promised a strong consumer complaints mechanism and… institutionalizing the separation of regulation of financial advice and investment transactions.”

In order to facilitate the transition to regulation, the report says that the Consumer Measures Committee of provincial and federal ministers responsible for consumer protection should meet on the issue of financial planner regulation and issue policy recommendations. It suggests that the Uniform Law Conference of Canada also could be asked for a draft provincial law. And, it says that the Financial Consumer Agency of Canada and the provincial consumer protection authorities should study the fee-only financial planner model as an option for consumers to the traditional commission/referral fee financial planner business model.

“It may be in studying the fee-only model that potential regulatory requirements such as separation of financial planners from ownership of, or employment by, financial companies or particular investments (including prohibition on related parties owning or being employed by these entities) may be appropriate and necessary in the future,” it says.

Additionally, PIAC calls upon the “fee-only” financial planners to organize or for the existing planning organizations to create a designation to allow consumers to easily find a fee-only planner. And, it says that provincial regulators should determine if disclosure should be made whenever any financial plan element is ‘implemented’ — even where that does not trigger a duty under securities legislation (such as an insurance referral).

Finally, it recommends further study of the benefits of comprehensive financial planning for a larger number of middle to lower income Canadians.

PIAC’s report is based on two focus groups undertaken in Toronto by Environics Research Group with financial planners and their clients in November 2008.

IE