Although the mutual Fund Dealers Association of Canada‘s (MFDA) run at the long-standing concern about the lack of proficiency standards for financial planners is widely supported, some worry it won’t provide the comprehensive solution this problem needs.
The MFDA proposed changes to its rules in October 2016 that would establish minimum proficiency requirements for mutual fund representatives who want to call themselves financial planners. Investor advocates and regulators alike have long worried about the fact there are no standards for anyone who decides to call him- or herself a financial planner. Thus, there’s no easy way for ordinary retail investors to distinguish between a highly trained financial planner and a complete novice.
There’s almost unanimous agreement that this gap in the regulatory system needs to be plugged. The issue is not whether financial planners should be qualified to prepare financial plans for clients – that’s undeniable. However, there has long been controversy over just what those qualifications should be and who should set them. Given the lack of consensus on those questions, the problem has remained unresolved for the past 20 years or so.
The MFDA’s latest attempt to address the issue is now running into the same kinds of concerns. For example, the Financial Planning Standards Council (FPSC) says in its comment on the MFDA’s proposals that while it supports the underlying objective of setting minimum standards for financial planners, it has fundamental concerns with the self-regulatory organization’s (SRO) effort.
In particular, the FPSC is concerned the MFDA’s requirements would only apply to mutual fund reps. This would not prevent anyone outside the SRO’s jurisdiction from using the “financial planner” title. As a result, the proposals won’t protect consumers from potentially dealing with unqualified financial planners outside the mutual fund dealer business.
“Without a co-ordinated and unified national, cross-sectoral solution to this issue, independent rules by any single regulator or [SRO] will perpetuate further confusion with consumers and throughout the industry,” the FPSC’s submission states.
Instead, the FPSC is calling on the MFDA to allow the Canadian Securities Administrators (CSA) to address the issue as part of a consultation launched last year on a set of so-called “targeted reforms” to client/advisor relationships, including new rules for the titles that reps can use.
“We strongly encourage the MFDA to focus on supporting a solution to the problems created by inappropriate use of the ‘financial planner’ title within the context of the CSA’s ongoing consultation rather than through implementation of a limited and potentially duplicative rule,” the FPSC says in its comment.
The Independent Financial Brokers of Canada (IFB) echoes the FPSC’s concerns, noting in its comment that both the CSA consultation and the Ontario government’s Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives are both covering similar ground.
The IFB warns that “there is a great risk of creating confusion” for both the industry and investors if the MFDA goes it alone before the CSA or the expert panel finalize their proposals for reforms to titles and proficiency.
Yet, others would like to see the MFDA go ahead with its own rules, regardless of other policymakers’ ongoing work. For example, the Federation of Mutual Fund Dealers lauds the SRO’s initiative, saying it would “lead the industry with the creation of a transparent model for its members that is consistent with other proficiency titles and designations and regulatory bodies in Canada.”
Calgary-based mutual fund dealer Portfolio Strategies Corp. also supports the MFDA’s approach, arguing that the rule for mutual fund dealers would cover more than half of the industry’s frontline reps. And if the long-running dream of a comprehensive standard ever does come to fruition, then the MFDA’s rule could always be revised – although, its comment points out these discussions “have been ongoing for over 30 years and have not yet produced any tangible results.”
Neither the CSA, whose consultation covers a much broader set of concerns, nor the expert committee have yet to come up with a viable solution to this enduring issue. The CSA’s paper doesn’t specifically focus on financial planning, although it does contemplate a new regulatory approach to reps’ titles, intended to enhance transparency and reduce client confusion.
The expert panel does focus on the use of financial planner titles and qualifications. In its preliminary recommendations, the panel recommends both that financial planners be subject to a single set of proficiency standards, regardless of the channel in which they operate; and, that the use of the “financial planner” title be restricted to reps who are regulated either by an SRO or a government agency and who meet a universal proficiency standard.
Yet, unlike the CSA or the MFDA, which effectively have national reach, the expert panel’s work is limited to Ontario and it also remains unclear whether the provincial government will follow through on its recommendations.
The expert committee was supposed to deliver its final report by the end of 2016, but the province’s Finance ministry now says the final report and recommendations will be released some time in early 2017.
The MFDA indicates that it would consider revising its proposals based on the final recommendations from the expert committee.
“If they propose something different than what we have published, obviously we would look at amending our rule proposal,” confirms Karen McGuinness, senior vice president member regulation, compliance, with the MFDA.
The FPSC says in its submission to the MFDA that these initiatives should take precedence over the SRO’s work because they would “both provide the opportunity for more co-ordinated and consistent restriction of the ‘financial planner’ title.”
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