From the Regulators

The report makes several recommendations dealing with titles and credentials that are likely to have a significant impact on many in the investment industry

By Patricia Chisholm |

 

The Ontario government's Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives has recommended a series of new standards that appear designed to bring financial advisors and financial planners under a strict new regulatory scheme that would include a statutory best interests duty, overhauling the use of titles and the creation of a new regulatory body.

The Expert Committee's much-anticipated final report, expected last autumn but postponed and released quietly by Ontario's Ministry of Finance on Thursday, describes the scheme of the recommendations as a "tripartite approach." It's three main pillars include: a new, harmonized regulatory framework for those who work in the industry; imposition of a duty to act in the best interests of clients; and upgraded and simplified titles and credentials for advisors based on heightened proficiency requirements.

The latter recommendation follows the long-standing recommendations of industry groups such as the Financial Planning Standards Council (FPSC) and Advocis. These organizations have advocated for a system of certification of individuals  — similar to professions such as lawyers and accountants — for financial planners and financial advisors rather than regulation based on an individual's or firm's activity.

"We appreciate that the Expert Committee recognized that the lack of regulatory standards for financial planning creates confusion and undermines the ability of consumers to make informed choices about their financial health," says Cary List, president and CEO of the FPSC, in a comment responding to the report.

The committee also outlined a broad new statutory framework for the implementation of its recommendations. The new regime would broaden the Ontario Securities Commission's (OSC) mandate, and the provincial securities commission would regulate in conjunction with a new body called the Financial Service Regulatory Authority, which would replace the Financial Services Commission of Ontario (referred to in the report as FSCO/FSRA). All these bodies would be granted new statutory powers to regulate financial planning, financial advice and those who sell financial products.

Read: MFDA proposal runs into opposition

Read: What's in a name?

Read: Expert Committee calls for regulation of financial planning, statutory duty

Individuals and firms who say they offer financial advice and currently fall under the regulatory framework for securities, insurance and mortgage brokering, would have their financial advice activities regulated by their current, but newly empowered, regulator. Financial advisors and financial planners currently outside these groups would be governed by FSCO/FSRA.

The report makes several recommendations dealing with titles and credentials that are likely to have a significant impact on many advisors, including: the need for specific credentials as a financial planner, whether or not the individual is "also engaged in financial product sales"; titles must be "absolutely clear" about services and products being provided to the consumer by those whose title includes the word "advisor"; and those who present themselves as providing advice should not be permitted to use "corporate positions or titles in retail, client-facing activities given the consumer confusion that results or can result from the use of such titles."

When it comes to financial planners, in particular, concrete changes were recommended that appear designed to carefully restrict who may hold themselves out as financial planners. Specifically, the report calls for regulators to formally recognize organizations that have the sole authority to confer the credentials that financial planners will require if the recommendations are put into effect.

Following a review of independent credentialing bodies with experience in standard setting in this industry, it's recommended that regulators "recognize the appropriate credentialing entity or entities to credential the individuals who wish to [call themselves] financial planners," the Expert Committee's report says. "Recognition of the credentialing entity or entities should be premised on the education requirements, experience requirements, ethical standards and self-proficiency processes of the entity or entities and the extent to which they meet the required proficiencies set by the OSC and FSCO/FSRA."

Another recommended change that's likely to provoke controversy is the imposition of a statutory best interest duty that appears to apply widely across the industry — not only to those with credentials as advisors or financial planners. In that respect, the report calls for a "Universal Statutory Best Interest Duty (SBID) to all individuals and firms that engage in Financial Product Sales or Hold Out as providing Financial Planning or Financial Advice."

There are exceptions to this broad, new duty, including those who are already subject to the duty under their existing licensing and registration requirements (such as portfolio managers); those who are already subject to a professional legal duty of care and fiduciary duty in a regulated profession; and individuals or firms that operate an order-execution platform and no financial or planning advice is being offered to the customers (such as discount brokers).

The Expert Committee also recommended a new central registry for advisors and financial planners. The registry would be free to users and "provide a one-stop source of information for consumers regarding the licensing and registration status, credentials and disciplinary history of individuals and firms that provide financial planning, financial advice and financial product sales in Ontario," the report recommends.

It appears that more changes may be coming. The Expert Committee also recommended that several issues not covered in the report receive further consideration as they fell outside the group's mandate. These include: a simplified complaint and redress process for consumers who use financial planning, advice and financial products; a simplified approach to the handling of consumer complaints in these areas; and a "consumer-friendly process" for the recovery of financial losses due to negligence in the provision of these services.

Photo copyright: gaudilab/123RF