Government must face down lobbies

Bringing some form of regulation to the business of financial planning is both a noble and necessary goal – but policy-makers should aim higher than merely restricting titles.

The current state of financial planning regulation in much of Canada is perverse. On one hand, financial planning advice probably trails only medical and legal advice in terms of its importance to the average Canadian. Yet, financial planning is the one area of the otherwise highly regulated financial services sector that’s almost entirely unsupervised. It’s the only “profession” that imposes no standards on its practitioners.

Absolutely anyone can hang out a shingle and offer financial planning services, regardless of their qualifications. This means that clients are at risk of receiving substandard advice, and financial planners are discouraged from increasing their professionalism and sophistication.

In the past, the industry has fought even modest efforts to address these issues. Now, the industry appears to be more open to some form of regulation.

The temptation for the Ontario government, which is considering reforms, will be to take the easy road and introduce some tepid restriction on titles and weak proficiency requirements that address the issues of the current system without inflaming industry opposition. Yet, such measures won’t do much to provide more independent, high-quality advice.

If unqualified, self-styled financial planners are merely replaced with minimally qualified, still conflicted financial planners, there will be no greater assurance that people who call themselves financial planners are actually doing any genuine financial planning. Genuine financial planning means helping clients navigate the complex worlds of taxes, estates, insurance and investments, not just passing on some basic asset-allocation tips.

To make the shift, financial planners must be paid explicitly to provide financial planning advice, not collecting embedded commissions and giving away the advice for “free.” If the government truly aspires to address the core problem, it must face down powerful lobbies and do what’s right – both for individuals and for the long-term health of an aspiring profession.