The Investment Industry Regulatory Organization of Canada (IIROC) is calling on firms to be more conscientious about the sorts of titles that their reps can use, and the professional designations they tout, so that clients aren’t deceived or misled.
IIROC Tuesday issued a proposed guidance note today that sets out best practices for firms to follow in supervising the use of business titles and professional designations. At the heart of the issue is the long-standing concern that reps are able to use all sorts of titles that may give clients a false impression of their role, and their proficiency.
Indeed, IIROC’s guidance note indicates that it carried out research into the use of titles, investors’ understanding of those titles, and firms’ supervision of the use of titles, which reflects that basic concern.
It reports that its survey of firms found that there are a wide array of business titles in use by reps, both between and within firms. It also found that many of these titles “do not, on their own, provide a meaningful description of the type of services and/or investment products that a licensed representative can offer to a client.”
It also found a wide array of professional designations, with varying qualifications; and, that most firms don’t explain the meaning of these designations to clients. Additionally, only 40.6% of firms have specific written policies and procedures relating to the use of business titles and financial designations. However, most (87%) do have a process to review and approve business title and financial designation use.
The investor research found that most clients seek advisors for their perceived expertise; that they primarily rely on referrals and do not carry out any independent due diligence before selecting their advisor; and that they assume there is some oversight of the use of titles by either the firm or regulators.
Also, the research found that the vast majority of investors who participated in the focus groups could not recall the business title of their advisor, or their financial designations. It reports that investors and investor advocates also suggested that certain titles such as advisor, retirement specialist, and vice president, may be problematic as they imply expertise and that the rep is a fiduciary rather than a salesperson.
IIROC’s proposed new guidance aims to avoid that sort of confusion. It sets out that reps should not use titles that are deceptive or misleading. Also, IIROC expects firms will implement policies and procedures to promote greater transparency for clients about titles and designations, particularly for more vulnerable, less sophisticated investors. This is to include guidance to reps on the titles and designations that can be used, and any restrictions or prohibitions on titles, including any pre-approval requirements.
“To mitigate against public confusion and increase public understanding of an individual’s registration status, business titles should be coupled with public disclosure and plain language explanation of the individual’s IIROC approval category, corresponding proficiencies, and IIROC as the licensing body,” it says.
It also suggests that firms should consider centralizing the review and approval process to ensure consistency, and that responsibility for monitoring the use of titles and designations should be assigned to a specific individual or department.
When deciding whether to approve the use of a designation, IIROC says that firms should consider whether the designation has: a rigorous curriculum; an emphasis on ethics; a continuing education requirement; a method for determining the individual’s current status regarding the designation; a public disciplinary process; and/or, whether it’s issued by a reputable organization.
“In developing firm criteria in this area, firms should recognize that certain types of clients, such as the elderly, may be particularly vulnerable to certain risks,” it says; and that allowing reps to use designations, including those that suggest an expertise in retirement planning, “firms must have procedures in place to ensure that those financial designations are appropriate.”
“Protecting investors is core to IIROC’s mandate and an important element of protection is helping to ensure that investors can make informed decisions,” said Susan Wolburgh Jenah, IIROC’s president and CEO. “With many titles in use, identifying best practices that are embraced and implemented by IIROC-regulated firms will provide investors with better descriptions and understanding of the services offered to retail clients.”
The proposed guidance is out for comment until March 9.