Focus on Financial Planning

Cary List

Cary List is president and CEO of the Financial Planning Standards Council (FPSC), a not-for-profit organization based in Toronto that develops, promotes and enforces professional standards for financial planning in Canada through the certified financial planner (CFP) designation.

It’s time that either the term “financial advisor” truly means something — separate and apart from the licence to sell a product — or to ban its use entirely

By Cary List |

Canadians are confused — and rightfully so. Anybody licensed to sell any financial product or offer any form of advice that's related to finances is a "financial advisor." A vast range of individuals, many of who possess wildly different knowledge, skills and abilities — and in many cases offer very different services and products — use the moniker "financial advisor." But in clients' eyes, they're all the same. The confusion caused by lumping all these "financial advisors'" into one basket continues to be ignored to the peril of Canadians.

Further confusing the matter, the terms "financial planner" and "financial advisor" are also used interchangeably. This is not OK. Although all financial planners are financial advisors, not all financial advisors are financial planners. But ask the average Canadian and he or she will tell you that his or her "financial advisor" is a financial planner. Clients often believe that the investment advice they receive from their licensed "financial advisor" is a "financial plan." They believe that their retirements are secure because they trust that their financial advisor is a highly qualified professional who is knowledgeable and competent in all financial matters. They also believe the financial advisor is obligated to act in their best interest, not only for the products these advisors sell, but for the "professional advice" they give.

Canadians continue to be led to believe "financial advisors" are all one and the same. In fact, they have no idea that there is no clearly defined set of knowledge, skills or abilities for a "financial advisor"; that outside of Quebec, neither governments nor regulators provide any clarification on what is meant by the terms "financial planner" or "financial advisor"; and that there is no law on who can use either title. If governments, regulators and the financial services industry itself continue to perpetuate this confusion, consumers will remain frustrated and at risk of getting the wrong advice from the wrong people.

I'm not splitting hairs;  there are huge crevasses between the qualifications, licences and accountabilities from one so-called "financial advisor" to another. Yet, we throw them all in the same pot, call them all "financial advisors" or "financial planners" interchangeably and expect Canadians to recognize the difference. We describe an investment strategy as a "financial plan" and wonder why consumers are frustrated.

The term "financial advice" and the title "financial advisor," are currently generic terms that do not describe any single body of knowledge, competencies, practice, type of service or even product offering. The knowledge, skills and abilities of those referred to under the universal "financial advisor" title are as varied as the products and services these individuals offer. Each may possess their own, often distinct, competencies and/or qualifications based on their licences, but there's currently no commonly accepted body of knowledge, competencies, or common barrier for entry (through a common standard) for this diverse group.

The discreet and different knowledge required by licence for each of these "financial advisors" likely makes it impossible to adopt a clear, unified definition for the collective. As long as regulation of "financial advisors" remains siloed and based on licences to sell certain products, the term "financial advisor" will remain a confusing amalgamation of disparate elements.

Financial planners, on the other hand, have a 30-year history in this country as professionals whom clients should expect to be able to provide a disciplined, multi‐step approach to assessing an individual's current financial and personal circumstances against their future desired state. Clients also expect financial planners to develop strategies that will help them  meet their personal goals, needs and priorities in a way that aims to optimize their financial well-being.

A true professional financial planner is obligated to possess deep and broad knowledge far beyond product and to consider the inter‐relationships among relevant financial planning areas in formulating appropriate strategies. Even though many financial planners are also licensed to sell financial products, the use of the title "financial planner" must connote knowledge, skills, abilities, service and professional responsibility beyond that required of someone whose credentials do not extend beyond product licence.

The financial planner title should be restricted by law to those who possess the requisite knowledge, skills, abilities and professional judgement required to provide objective financial planning at the highest level of complexity required of the profession. Furthermore, financial planners must be required to be held accountable to a professional body and be expected to possess the knowledge, skills and abilities delineated through a singular body of knowledge, competency profile and certification process that ensures uniform and consistent standards for the profession.

Playing to the lowest common denominator is putting the financial futures of Canadians at risk. It's time to adopt, in law, a unified title restriction for "financial planners" and adopt, in law, either elevation of the term "financial advisor" to truly mean something as a financial professional, separate and apart from the licence to sell a product, or to ban the term "financial advisor" entirely.