Focus on Financial Planning

Keith Costello

Keith Costello is president and CEO of the Canadian Institute of Financial Planners (CIFPs) and the Canadian Institute of Financial Planning (CIFP). Over the past 15 years, Costello has led the creation of educational solutions, practitioner support services and advocacy support for financial planners.

Financial planners and financial advisors need to be aware of the impact Ontario’s Expert Committee could have on their practices

By Keith Costello |

The questions that Ontario's Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives (Expert Committee) has posed concerning more tailored regulation of financial planning and financial advice could have far-reaching implications for financial planners, financial advisors and their practices.

Although many of the more than 100 submissions in response to the Expert Committee's recent consultation paper focused on the overall question on the regulation of financial planning and financial advice, many did not address the more detailed questions the Expert Committee has posed.

These questions are very important for financial planners and advisors because the Expert Committee's eventual recommendations for these questions may change how financial planning and financial advice is provided in Ontario — and, ultimately, across Canada — dramatically. Therefore, more debate is needed on these questions to achieve the best solutions for all stakeholders.

I will paraphrase the most important of these consultation questions for simplicity and brevity, and offer some answers for debate:

> Question 1: What is the difference between financial planning and financial advice?

The answer to this simple question has eluded many stakeholders for years and has prevented effective regulation. My view is that they are different. Financial planning is comprehensive and deals with the client's ongoing and overall life goals. In contrast, financial advice is usually provided to meet a client's specific and one-time need. When offering financial advice, there is no expectation that the advisor is dealing with a client's overall and ongoing financial needs. The most important point is to delineate effectively between financial planning and financial advice to enhance consumer clarity and protection.

> Question 2: Is the current regulatory scheme for financial planning and financial advice adequate?

Unfortunately, financial planning is not regulated, and anyone is able to present him- or herself as a financial planner regardless of his or her qualifications. Financial planning needs to be regulated separately from financial advice — not treated as a speciality area of financial advice. Furthermore, although financial advice is regulated more extensively, the various types of financial advice need to be defined more precisely. Moreover, titles representing these various advice types need to be regulated to ensure they are backed by a rigorous educational program of study and examination, work experience, annual continuing education, code of conduct and ethics as well as standards of practice.

> Question 3: What legal standard(s) should govern conflicts of interest in providing financial planning and financial advice?

This question focuses on the debate over whether to introduce a full fiduciary duty or best interest standard. Many stakeholders are split on this question. In my view, a graduated system of duty of care is needed, with an advisor's duty of care increasing as the complexity of the level of advice increases. Ultimately, a full fiduciary duty for financial planning advice must be required.

> Question 4 was the most reaching question. It asks what activities should be regulated for those engaging in financial planning and financial advice?

The most important areas that I wish to comment on are education, costs and burden, compensation, and complaints.

I propose that educational standards must rise, including the regulation of the educators, to a higher standard. I also highlight that regulation must be uniform across all the investment industry channels and Canadian jurisdictions to ease the cost and burden on financial planners and advisors.

In addition, compensation is becoming the most contentious issue in regulatory reform. Data research is now pointing to conflicts of interest with commission payments. I recommend a compensation model for advice that gives financial consumers a choice between paying for advice directly or having their advisors compensated from an independent advice fund that's funded by commission payments but not linked to product purchases.

Finally, we need one central integrated complaint and discipline registry so that financial consumers have one single source to ensure that they're dealing with reputable financial planners and advisors.

These questions that the Expert Committee has posed are more far reaching than what has been reported. Depending on how they are acted upon will affect how financial planning and financial advice will be delivered in the future. Financial planners and advisors need to join the debate to help shape their future.