Reaction to Ontario's initiative reveals big differences of opinion

By James Langton | March 2014

There's remarkable consensus that the lack of regulation for financial planners needs to be addressed, but figuring out what to do is another matter.

For the better part of 20 years now, the complete absence of any oversight of or restriction on the practice of financial planning in most provinces has been identified as a glaring gap in the Canadian regulatory framework. The problem was pointed out in securities lawyer (now retired) Glorianne Stromberg's seminal report on the mutual fund industry way back in 1995. However, various efforts at correcting this basic flaw over the years have inevitably faltered for one reason or another. Now, Ontario's provincial government is taking another crack at it.

The Ontario Ministry of Finance's economic outlook this past autumn signalled the intention to tackle this issue once again.

That document says that the province intends to study the idea of introducing some regulation for financial planners in Ontario. As it stands, there is none - anyone can claim to be a financial planner, and a prospective client has no simple way to distinguish between a well-qualified professional and an uninformed hack.

This has attracted the government's attention, according to the outlook document, because "the absence of a framework for financial planning has provoked questions about proficiency, quality standards and potential conflicts of interest."

None of this is new. But the fact Ontario now is paying attention at least provides hope that these issues are going to be addressed finally. Finance held a couple of roundtables on the issue in January, and the ministry also has solicited written submissions from the financial services sector and others.

Those submissions, which were published in early February, indicate that there's almost unanimous agreement that the complete lack of regulation should be addressed. Of course, that's much easier said than done. And there's a wide divergence of opinion on the best way to proceed.

(A recent proposed approach can be seen in a private member's bill from a Liberal member of the Ontario legislature that would regulate all those who offer financial advice. See story below.)

Some commenters would be content with basic restrictions on the use of certain business titles so that the public has some basic assurance that people claiming to be financial planners have some minimal qualifications in that discipline.

Some comments call for a new self-regulatory organization (SRO) to police financial planners specifically; others maintain that what's most important is compensation structures and conduct standards - and that financial planners be required to be paid directly for their planning advice, not be compensated indirectly by selling products.

It's premature to say what the government will do, if anything.

"We're currently reviewing the results of the consultation," says Susie Heath, press secretary to Ontario Finance Minister Charles Sousa, "and will have more to say on next steps shortly."

In the wake of these consultations, the government has lots of options to chew over. At the less intrusive end of the spectrum, some comments, such as that from the Canadian Life and Health Insurance Association Inc. (CLHIA), recommend that Ontario deal with the issues of consumer confusion and uncertainty simply by regulating titles.

CLHIA's submission warns against attempting to define financial planning itself - an exercise that has proved to be tricky in the past; rather, individuals who declare themselves to be financial planners should be required to adhere to standards for financial planning proficiency: "Effective industry standards for financial planning are already well established by organizations such as the Financial Planning Standards Council. The role of provincial regulation should be to enforce compliance with the industry standards through provisions related to holding out and accountability."

Comments from existing regulators, such as the Mutual Fund Dealers Association of Canada (MFDA), also support establishing minimum standards for individuals that market themselves as financial planners. However, the MFDA's comment cautions against adding a new layer of regulation, warning that this would be "redundant and inefficient and could lead to unnecessary cost and jurisdictional issues."

Also, the MFDA comment warns, redundant regulation could confuse investors and undermine efforts to ensure investor protection.

Many of these same concerns are echoed in the comments from the Investment Industry Regulatory Organization of Canada (IIROC), which also warns against further rules for firms and reps that are already under SRO oversight: "We are confident that tailored regulation of financial planners in Ontario can be achieved without imposing additional confusion, duplication and costs on the industry and the investing public."

Indeed, in the wake of this latest effort to tackle the financial planning problem in Ontario, IIROC announced in February that it is dropping its own proposed effort to improve the oversight of the financial planning activities of its dealers and reps. IIROC launched its initiative in 2008, but that effort seemingly went dormant.

IIROC, in abandoning its proposal, cited the resurgent discussions about how to regulate financial planning in general. IIROC believes that a more comprehensive approach would be preferable (given that IIROC can make rules only for reps that it already regulates).

The Investment Industry Association of Canada (IIAC) also is eager to avoid any new rules for IIROC-licensed advisors but is keen to see a level playing field for advisors who already face SRO oversight and those who don't.

To that end, the IIAC comment is in favour of requiring all financial planners to belong to some SRO in order to "address existing regulatory gaps." That comment recommends that a dedicated financial planning SRO be created to capture financial planners who aren't otherwise already licensed and supervised by IIROC or the MFDA: "This new financial planning SRO would have the mandate of supporting professional standards in financial planning and have a role in education, certification, enforcement and oversight of financial planners. In this way, a regulatory framework for financial planning could effectively function within the existing regulatory framework in Canada."

Meanwhile, the comment from the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) suggests that titles and proficiency aren't the real issues: "While FAIR Canada unequivocally supports regulatory measures that will provide the best and highest-quality financial advice to consumers, we suspect that the impact of compensation structures on the quality of financial plans (and adherence to them) is much greater than proficiency, professionalism, and other factors."

FAIR Canada's comment argues that the bigger problem is "that consumers are not being provided with real financial planning advice" by investment dealer and fund dealer reps; rather, clients often are being sold products under the guise of financial planning.

Thus, FAIR Canada's comment calls on the Ontario government to sever the connection between planning advice and product sales, and allow only financial planners that charge a fee for their planning services hold themselves out to be genuine financial planners.

According to FAIR Canada's comment: "The current system does not serve well-intentioned financial planners or consumers well and does not encourage the emergence of a true financial planning profession."

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