Accurate labelling is Consumer Protection 101. Yet, in the retail investment business, this principle proves fiendishly difficult to implement.
The Financial Services Regulatory Authority of Ontario (FSRA) has undertaken the latest effort to ensure that individuals who call themselves financial advisors or financial planners are qualified to provide advice or planning services.
In August, FSRA published a proposed rule that sets out minimum standards to qualify as a “financial advisor” or “financial planner.” The proposal also establishes requirements credentialing bodies must meet in order to be recognized by FSRA as approved administrators of the titles.
Comment letters on FSRA’s proposed regime suggest the regulator isn’t having much more success than predecessors that sought to clean up the messy jumble of industry titles.
While the financial services sector has expressed support for the underlying goal of restricting who can call themselves a financial advisor or planner, various factions are keen to avoid added costs and disruption to their existing practices.
The insurance industry wants the life license qualification program (LLQP) to meet the proposed standard for reps using the financial advisor title. Yet the LLQP was singled out in FSRA’s draft proposal as not meeting a sufficient standard for title protection.
The comment letter from the Canadian Life and Health Insurance Association stated that any perceived “gap” in the life licensing regime could be addressed “through updates to the LLQP continuing education requirements.”
Securities industry trade groups want their existing reps to be exempt from FSRA’s proposed regime — and the banks want to continue using an array of titles, such as wealth planner, banking advisor and estate planner.
The Investment Industry Association of Canada (IIAC) recommends exempting both investment dealers and fund dealers from FSRA’s requirements “to avoid duplicative oversight and unnecessary regulatory burden.” Self-regulatory organizations (SROs) “have rigorous proficiency requirements and business and financial conduct oversight of their registrants,” the IIAC’s letter stated.
FSRA’s notice detailing the proposed regime stated that the “primary objective of the framework is to create minimum standards for title usage, without creating unnecessary regulatory burden for title users.” However, FSRA’s concern about avoiding additional burden is rubbing some critics the wrong way.
The comment from the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) stated that instead of focusing on concerns about duplicative oversight, “FSRA should prioritize consumer confusion and the potential for uneven standards … by the various credentialing bodies.”
FAIR Canada’s letter suggested the proposed regime is unlikely to deliver the basic consumer protection of accurately declaring what’s in the tin: “The regulatory framework appears aimed more at protecting the credentialing bodies [that] will be authorized to grant use of the titles, financial planner and financial advisor, than on needed consumer protection.”
The bewildering array of titles used in the sector — and lack of basic proficiency standards behind those titles — has long been an investor protection concern. Clearing up that confusion is one of the central aims of title regulation.
A number of comments pointed out that FSRA’s proposal won’t do much to eliminate that confusion. The problem, they stated, is that the proposed regime seeks only to establish requirements for using the “financial advisor” and “financial planner” titles — and leaves open the continued use of numerous alternative titles that hint at financial expertise without adhering to actual standards.
“There is a real and insidious risk of a worse outcome for Ontarians if the ambit of [FSRA’s framework] does not capture titles that can be reasonably confused with the [financial advisor/planner] titles,” stated a submission from lawyer Harold Geller and his Ottawa-based firm, MBC Law Corp.
This concern was echoed in FP Canada’s submission: “[W]ithout strict regulation of other misleading titles, individuals not meeting the approved credential requirements will simply use similar sounding, misleading titles, thereby perpetuating consumer confusion and undermining the efficacy of the framework.”
To prevent consumer confusion, FP Canada’s letter recommended that the regulator set out a list of potentially misleading titles to prohibit, similar to the approach used in Quebec, where use of the financial planner title has long been regulated.
Indeed, several comments, including that from the Ontario Bar Association (OBA), pointed to Quebec’s approach to overseeing financial planners as a model for Ontario to emulate.
The OBA warned that simply creating parameters to restrict the use of two popular titles without setting specific standards “will do too little to address the underlying issues with respect to protection of the public interest and instilling consumer confidence in the long term.”
The primary objective of the proposed regime should be consumer protection, the OBA’s letter stated. Failing to set regulations that include a code of ethics, a searchable database for consumers and a disciplinary process “allows employers, credentialing bodies and other organizations to create the standard of what is acceptable and unacceptable behaviour in this industry.”
Geller’s submission warned that the proposed regulations risk adding a compliance burden without providing “a minimal level of consumer protection.”
“The FSRA framework is not what Ontario’s consumers sought nor needed,” Geller’s letter stated. “The legislature has opted for a finger-in-the-dyke response to the demands of Ontarians.”
This patchwork approach to reform may be least disruptive for the sector — and that’s a problem for some.
“If SROs become approved credentialing bodies — thereby making individual registrants approved [financial planner] or [financial advisor] title holders — this entire endeavour will have been a waste of time and resources,” warned the submission from Dan Hallett, vice-president, research, and principal with Oakville, Ont.’s HighView Asset Management Ltd.
The Investment Industry Regulatory Organization of Canada’s (IIROC) submission raised concerns about new credentialing bodies creating “an un-level playing field” or duplicative oversight — a concern echoed by the Mutual Fund Dealers Association of Canada in its submission.
IIROC’s letter suggested the proposed regulations allow credentialing bodies that “do not have appropriate established capabilities with respect to compliance and enforcement to rely on (i.e., delegate to) existing regulatory compliance and enforcement regimes, where practical/appropriate.”