IIROC takes aim at designations

The concern for regulators is that industry titles and designations could be, at best, confusing to clients and, at worst, misleading or deceptive. Clients may be dazzled by the prospect of dealing with a senior vice president at a major Bay Street firm without understanding that the title really doesn’t confer any exceptional status when there are hundreds of reps sporting the same label.

Or clients may believe that a rep with a long string of letters after their name, thanks to numerous professional accreditations, has special expertise – without understanding that the quality and the value of these designations varies widely.

IIROC’s research into the issue found that there is a broad array of business titles in use by reps, both among different firms and within the same firm. The IIROC paper also says 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.”

IIROC’s research also found that reps boast a diverse range of professional designations, with vastly different qualifications. And, the IIROC paper says, most firms don’t explain the meaning of these designations to clients.

So, most clients don’t know the difference between a rigorous designation, such as the certified financial analyst, which requires extensive study and adherence to a code of conduct and imposes discipline on its holders, and a much simpler accreditation that can be acquired with minimal effort and doesn’t require any ongoing work to maintain.

This concern on the part of regulators about the confusion caused by industry titles and designations is not new. In the past, for example, regulators have granted relief from insider reporting requirements to account for the fact that the “vice president” title is used so indiscriminately in the financial services industry and regulators don’t want to have to collect and sift through insider trading reports from every nominal VP.

Regulators have been less successful at protecting the public from potential confusion. Past efforts to regulate the use of titles such as “financial planner” – and to impose minimum proficiency requirements on the use of that title – have run into staunch industry opposition, leading regulators to abandon those proposals.

This latest initiative from IIROC should be much less intrusive. Rather than restricting or prescribing the use of particular titles, the regulator’s proposed guidance simply sets out best practices for firms in the use of business titles and professional designations.

While the guidance requires that reps not use titles that are deceptive or misleading, the paper doesn’t define when this would be the case. The paper does indicate that IIROC expects firms to implement policies to promote greater transparency for clients regarding titles and designations – particularly for more vulnerable, less sophisticated clients.

Says the IIROC guidance: “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.”

@page_break@The IIROC paper recommends that responsibility for monitoring the use of titles and designations be assigned to a specific individual or department and that the review and approval process be centralized to ensure consistency. Further, IIROC plans to compile a glossary of designations in order to help investors understand what they are and what they mean.

It’s unclear whether any of this will improve things for clients. IIROC’s focus group research suggests that most investors don’t do much investigation into their advisor’s qualifications and also assume that there is some sort of oversight of titles and designations.

So, if firms pay more attention to the use of titles, it may help to avoid some client confusion. But those efforts obviously are not going to be as definitive as standardizing and prescribing the use of titles.

Says Lucy Becker, vice president, public affairs, with IIROC: “By issuing a guidance notice focusing on best practices, we are encouraging the industry to review the titles and designations in use and to consider how they may be interpreted by investors. Our goal is to improve transparency, clarity and consistency in the use of business titles and financial designations by advisors.”

It’s too early to predict whether this initiative will reduce the number of titles being used, Becker says. It’s also too soon to say what IIROC may do next if this guidance fails to reduce client confusion. For now, IIROC is seeking comment, from both the industry and investors. Comments are due by March 9.

The Mutual Fund Dealers Association of Canada (MFDA)does not intend to follow IIROC’s lead with guidance of its own. Karen McGuinness, the MFDA’s vice president, compliance, points out that the MFDA has a specific rule that deals with the use of titles. As well, she says, the MFDA already monitors and enforces compliance with that rule.

As for designations, McGuinness acknowledges there is a wide variety, and that their quality varies greatly. On that count, she says, the MFDA supports IIROC’s plan to publish a glossary of designations.

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