This article appears in the Mid-October 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Saskatchewan is in an unusual position:at the centre of a heated regulatory policy debate with national implications for financial services regulation. While some hoped the Prairie province would quietly follow Ontario’s approach to regulating industry titles, others are pinning their hopes on Saskatchewan leading the way to enhanced investor protection.
In late September, Saskatchewan’s integrated financial regulator, the Financial and Consumer Affairs Authority (FCAA), wrapped up its second consultation on a proposed framework for “financial planner” and “financial advisor” titles.
Legislation to regulate industry titles in Saskatchewan passed in 2020, and the FCAA consulted on proposed regulations the following year. However, after considering the feedback on those proposals — which were drafted to closely follow Ontario’s model — and observing how the Financial Services Regulatory Authority of Ontario (FSRA) implemented its regime, the FCAA launched a second consultation in July.
The FCAA indicated it was rethinking the “product-focused approach” to setting proficiency standards for financial advisors. At the risk of deviating from Ontario’s regime, the FCAA instead contemplated a “comprehensive approach” to advisor standards that goes beyond competency in specific products.
“It is safe to assume than many clients will expect [financial advisors] to provide broad-based comprehensive financial advice that goes well beyond specific product-focused advice,” the FCAA stated in its second consultation. “For these clients, if the [advisor’s] knowledge and approach is focused on a specific product, the client’s experience may be more than just disappointing — it may lead to poor financial choices and decisions.”
Moreover, the FCAA questioned the value of introducing standards that largely mimic product licensing requirements, which it said would increase the regulatory burden on the industry with no added benefit to investors.
Since then, FSRA approved a new credential in Ontario that effectively mirrors the licensing requirements set by the Investment Industry Regulatory Organization of Canada (IIROC). That decision has raised eyebrows among investor advocates, certain industry groups and IIROC itself.
For critics of Ontario’s regime, the FCAA is seen as a possible beacon to higher standards. FAIR Canada’s submission to the FCAA’s consultation stated the proposed comprehensive approach would better protect consumers in Saskatchewan — and that such a policy decision would resonate beyond the province’s borders.
“This is because other provinces adopting their own frameworks and approaches (such as New Brunswick) will look to the FCAA for leadership on this important consumer protection issue,” FAIR Canada said. The FCAA’s approach also may influence the provincial securities regulators and self-regulatory organizations (SROs) in their efforts to enhance proficiency standards and reduce title confusion, FAIR added.
The Canadian Advocacy Council of CFA Societies Canada’s submission echoed these comments: “We are hopeful that the FCAA can reverse some of the ‘race-to-the-bottom’ credential design and approvals that we have seen recently, and instead act as a force that moves credential design and knowledge/proficiency standards higher, such that the net effect is that of improving credential standards across jurisdictions to meet the most demanding regulatory standard.”
Advocis, the industry trade group, also favours the FCAA’s proposed model. The group’s submission stated that a comprehensive approach would better align advisors’ proficiency standards with client expectations, ensuring a “higher level of technical competence” and improved consumer protection.
Advocis added that the benefits of higher standards for consumers outweigh the downside of reduced harmonization with Ontario.
Lack of uniformity between Ontario and Saskatchewan would add costs to credential providers, as they may need to develop different courses for advisors in the provinces.
Advocis said Saskatchewan has a leadership opportunity: “Saskatchewan could take the role of flag bearer and encourage other jurisdictions to ‘harmonize up’ as title protection frameworks mature across the country in the coming years.”
The Independent Financial Brokers of Canada (IFB) also supported a tougher standard in its submission, saying it hoped “the Saskatchewan approach will be adopted by FSRA, and all [credentialling bodies] would enhance their programs.”
The IFB, which stressed that it doesn’t offer any credentials, and doesn’t plan to start, noted that Saskatchewan’s framework promises more robust enforcement. The FCAA can pursue fines under its legislation, the IFB said, while FSRA is restricted to issuing compliance orders.
Support for a tougher approach was not universal. The Investment Industry Association of Canada (IIAC) and the Investment Funds Institute of Canada (IFIC) both argued that regulators should focus on bringing unregulated, self-proclaimed “advisors” up to the same standards that SRO regulated advisors already meet.
IFIC’s submission stated that clients of advisors “who are already regulated under a robust client protection regime with clear relationship disclosure requirements do not require additional client protection requirements in Saskatchewan, particularly if those requirements are not harmonized with the SROs’ proficiency and disclosure requirements and do not provide any additional benefits.”
Moreover, the IIAC defended Ontario’s product-focused model, noting that registered advisors are already subject to suitability rules that require them to prioritize their clients’ interests and to go beyond just considering products in determining what’s in clients’ best interests.
Against that backdrop, proficiency standards that focus on products are “appropriate for the financial advice provided by [financial advisors],” the IIAC’s submission stated.
Additionally, the IIAC said a product-focused approach would harmonize the title regulation regimes in Saskatchewan and Ontario: “Maintaining harmonization should be the first objective when proposing new regulations unless there are compelling reasons to do otherwise. No compelling reason has been provided.”
IFIC’s submission agreed, stating that the FCAA should not adopt a unique regime.