In Mid-July, the Investment Industry Regulatory Organization of Canada published a proposed financial planning rule for IIROC member firms. The rule would establish minimum proficiency and education standards for individual advisors, along with supervision guidelines for dealers.

The vast majority of financial planners are licensed to sell financial products, so it makes sense for a self-regulatory organization to make such a proposal. But a much bigger first step is needed if financial planning is going to be regulated at all.

The industry has long been criticized for its alphabet soup of financial planning designations and the lack of uniform regulation. IIROC’s proposal does not come close to solving these problems. For proficiency, a handful of designations are held out as the “minimum standard” — as if all are equal. Which they are not.

In other words, IIROC is seemingly unprepared to take a firm stand on any single minimum standard, preferring to point to a handful of existing credentials with wide-ranging standards. This supports the status quo, which confuses the public.

Of graver concern, IIROC’s proposed minimum standard does not require any practical experience to hold oneself out as a “financial planner” and provide financial planning services. In my opinion, this is unacceptable. It’s one thing to have an unregulated industry, but it’s quite another to create a new standard that requires zero experience. IIROC could not have set the regulatory bar much lower.

At an even more basic level, IIROC’s definition of financial planning requires some between-the-lines reading. The proposal defines financial planning as “a comprehensive service that helps clients reach stated goals through the analysis and management of their financial resources.” IIROC includes “investments” (read: asset-allocation advice) in the list of items that can be included in a comprehensive financial plan. But the proposal then highlights that a plan primarily directed at giving investment advice (read: product recommendations) is not financial planning because this is otherwise regulated.

This gets at another issue.

Financial planning, among other things, is about documenting advice for clients. Financial planners advising on and charging for asset-allocation advice with no product recommendations typically document their advice for clients. Yet, there is no regulatory requirement for licensed salespersons to put product recommendations in writing. It seems to me that IIROC’s efforts would have been more productively directed at requiring members to document investment advice before tackling unregulated financial planning advice.

The proposal also aims to regulate the use of titles such as “financial planner,” which was one of the goals of a now-dead Canadian Securities Administrators proposal: a much more ambitious initiative, Multilateral Instrument 33-107 was officially sent back to the drawing board because of concerns about cost/benefit issues.

MI 33-107, which effectively died seven years ago, sought to establish minimum proficiency through the creation and administration of a financial planning proficiency exam — i.e., a single standard. It was really an effort at complete financial planning regulation, which surely rattled cages across the industry. Although nothing is perfect, MI 33-107’s more comprehensive approach made a great deal more sense than IIROC’s current proposal because it would have created real standards.

IIROC appears to be proposing little else than the application of the standards to which designation-holders are subject now to a broader contingent of individuals and dealers.

I suppose low regulation is better than no regulation. But I say: do financial planning regulation right, or don’t do it at all. IE

Dan Hallett, CFA, CFP, is the president of Windsor, Ont.-based Dan Hallett & Associates Inc., which provides a recommended list of mutual funds and investment research to financial advisors across Canada.