The merits of regulating financial planners

In his letter to interested parties, Sousa states that “the absence of a general regulatory framework for financial planning has provoked questions about proficiency, quality standards and potential conflicts of interest. The Ontario government wants to better understand these issues and gain a fuller appreciation of the current state of the financial planning marketplace.”

Currently in Ontario and in most of Canada — except for Quebec — there’s no general regulatory framework in place to regulate the activities of individuals who offer financial advice and financial planning services. The regulation as it stands focuses on the type of financial product offered and regulating the sale of the product, not on the financial planning/advisory services provided. Furthermore, this regulation of products is inconsistent across the various industry sectors such as insurance and securities.

More specifically:

• There are no regulatory restrictions on the use of financial planning titles leading to the misuse of these titles for marketing purposes.
• There’s no single and identifiable set of standards that applies to the various financial planning titles and designations used by practitioners in the marketplace, causing confusion for clients.
• There’s also no designated regulatory authority to oversee financial planning standards or the services of financial planners; consequently, there’s no single access point for clients to register their complaints.

Implementing a single and identifiable set of standards, restrictions on the use of titles and an oversight body are the main tenets of a profession. For example, professions such as legal and accounting have these elements in place to ensure proficiency and quality standards and to eliminate conflicts of interest, which are the main issues Ontario’s provincial government is now exploring.

The key to effective regulation of financial planning is to use the professional model and not “water down” financial planning. This means:

• Advisors who wish to engage in and hold out as financial planners should be prepared to meet the higher standard.
• Financial planning is a distinct and professional discipline and, therefore, it’s not a subordinate process to a product sale, It also does not differ in quality and standards depending on the industry sector that it is being delivered within.
• Financial planners and financial planning standards should be overseen by a national professional body delegated by the government, not by associations, firms or existing product regulators.

Only by using this professional model will the Ontario government, and hopefully all provincial governments, reach their objective as stated in its letter to interested parties that “financial decisions confronting individuals are becoming increasingly important and increasing complex. As a result, consumers need access to informed, trustworthy professional financial advice to better allow them to achieve their financial goals.”