Across Canada, proposals for reform of financial planning and financial advisor titles are on the agenda of provincial governments and securities and insurance regulators. While there’s clear agreement that regulating titles is important, efforts haven’t been harmonized, which is at odds with the objective of better serving and protecting Canadian investors.
The Financial Services Regulatory Authority of Ontario recently announced that Ontario’s regulation of “financial advisor” and “financial planner” titles has received ministerial approval, with new rules and regulations now in effect. Both the Canadian Securities Administrators and the Ontario Securities Commission have announced plans of their own to tackle title reform, with one step being the client-focused reforms’ provisions related to the misuse of titles.
Saskatchewan introduced new legislation related to the financial advisor and financial planner titles last year, and securities regulators in New Brunswick are also consulting on this topic. Quebec has had a legislative scheme for the regulation of the financial planner title and the restriction of other titles for many years.
The securities self-regulatory organizations (SROs) have extensive rules, compliance and enforcement powers regulating titles. For example, the SROs require their approved persons to meet a minimum standard of education, training and experience before performing registerable activities. The minimum requirements to conduct registerable activities are substantially similar to the proposed minimum standards for using the financial advisor title.
The SROs have rules that prohibit individuals from holding themselves out in a manner that could be deceptive or misleading. This prohibition includes using a business title or financial designation without the required proficiency or qualifications. SRO members preclude individuals from using the financial planner title unless they have obtained a recognized financial planning designation, which again aligns with the expectations set out in the proposed title regulation rules.
These SRO rules will have to be amended, hopefully only once, since the SROs plan to amalgamate by January 2023.
The Investment Funds Institute of Canada (IFIC) has responded to requests for comment on various proposals for the regulation of individuals holding out as financial planners. We have emphasized two important principles:
- A title should reflect the functions of the person rendering the service and be readily understood by the average investor.
- The regulators should create a nationally harmonized set of rules to govern financial planning, regardless of the specific regulator that may oversee any individual who provides financial planning.
There are two reasons that regulatory harmonization of the financial planner and advisor titles is critical.
First is the importance of financial advice for clients to achieve their financial goals. Independent research and academic studies confirm the higher levels of wealth achieved by those who use advisors on an ongoing basis. Specifically, it has been shown that individuals who work with an advisor save 3.9 times more over a 15-year period than those who don’t. These investors also have better savings habits and are more confident in their ability to meet their retirement income needs.
The second reason for a nationally harmonized approach is investor protection. As it stands, financial professionals can hold one of many designations, including Certified Financial Planner, Charted Professional Accountant or Personal Financial Planner, to name a few. With the extensive list of financial designations, it becomes challenging for clients to understand whether their chosen professional has the “right” qualifications to suit their needs. If clients are misled or confused about the qualifications or credentials of the professional they retain, they may never achieve their financial goals. Worse, they may lose all their capital to fraudsters who have no financial planning credentials at all. A harmonized regulatory approach will help mitigate the confusion and help ensure that all clients receive advice from a qualified individual.
When regulatory reform spans federal and provincial jurisdiction and involves provincial regulatory agencies as well as self-regulatory organizations, coordination and harmonization are critical if the objectives of the reform are to be achieved. Harmonizing the regulation of titles for financial planning and financial advising activities is key when the regulations cut across functional, geographic and political boundaries.
Paul Bourque is president and CEO of the Investment Funds Institute of Canada.