Quebec-based inde-pendent financial advisors have formed a lobby group to end practices they say undermine the trust the public places in them.

The group, with the unwieldy name of Le Regroupement indépendant des conseillers de l’industrie financière du Québec (RICIFQ), was formed in March 2006. It now has about 800 members licensed to sell insurance products or mutual funds or both, and to provide financial planning services.

Members of the RICIFQ want to level the playing field between mutual funds and segregated funds by ending the questionable sales practices that are still allowed in connection with the sale of segregated funds and other insurance products. These questionable sales practices (identified in the 1995 Stromberg Report) include sales contests, trips, marketing allowances, commission rebates, high trailer fees and other incentives.

The problem dates back to 1998, when the Canadian Securities Administrators’ sales code rule (National Instrument 81-105) was implemented to curtail these practices for mutual fund sales but not for segregated fund sales. This omission opened a whole new dimension to conflicts of interest between dually licensed financial advisors and their clients. Some advisors stopped selling mutual funds and sold only insurance products to receive payments from insurers that would have been prohibited from fund companies.

The RICIFQ recognizes that this regulatory imbalance compromises the independence of financial advisors and creates an inherent conflict of interest between financial advisors and their clients. The group also recognizes that the regulatory imbalance compromises the integrity of the advice financial advisors give their clients by raising questions about whether the transactions are for the benefit of advisors rather than for the benefit of clients. The RICIFQ also realizes the sales practices leave the advisors dependent on the insurers who issue the segregated funds and provide incentives for their sale.

The Norbourg Asset Management Inc. and Norshield Financial Group scandals have focused public attention on the role of independent financial advisors and have raised concerns about the degree of trust the public can place in them to have clients’ interests held ahead of their own.

The RICIFQ should be commended for its efforts to urge Quebec regulatory authorities to end this imbalance between the regulation of mutual funds and that of segregated funds. Mutual funds and segregated funds are the functional equivalents of each other. It is unconscionable that the insurance segment of the financial services industry is still allowed to engage in questionable sales practices that have been banned from mutual fund sales.

I urge the Quebec regulatory authorities to take a leadership role in abolishing these questionable sales practices in the insurance industry, as well as in other parts of the financial services industry, and in persuading regulatory authorities in the other Canadian jurisdictions to do the same.

It’s also time for regulatory authorities to update the sales code rule to deal with practices developed since the rule was adopted about eight years ago. It’s time to extend the rule to the sale of proprietary funds. The interests of individual investors depend on it.

Regulators throughout Canada and governments need to pay attention to grassroots efforts such as those of the RICIFQ. They also need to act upon ideas advocated by groups such as the Coalition for the Protection of Investors and the RICIFQ, which are presenting briefs to Quebec’s Public Finance Parliamentary Commission calling for regulatory reform to address the growing imbalance between the needs of investors and the functioning of the investment industry.

It’s time to listen up and to act. IE