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Advisor credentials and titles are set to change, but an agreement on how appears to be a long way off

By Jim Middlemiss | October 2016

The long-simmering debate over credentials and titles of financial advisors has ramped up in the past few years, with regulators, governments, some industry associations and investor advocates in the financial services sector calling for enhanced education and more uniform titles for people calling themselves financial advisors. Consumer confusion and uneven levels of expertise among advisors are cited as the main drivers of the push for more uniform credentials.

The reforms, which are steering the industry toward the professional models governing such activities as law, accounting or engineering, are coming down two paths. On one path, the Canadian Securities Administrators (CSA), issued consultation paper, Proposals to Enhance the Obligations of Advisors to their Clients, in April 2016. These proposals include new titles for advisors who are registered with the Investment Industry Regulatory Organization of Canada (IIROC), as well as advisors governed by the Mutual Fund Dealers Association of Canada (MFDA).

On the other path, there is the report from Ontario's Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives, also released in April 2016, which proposes sweeping changes to the regulation of financial planning. This report recommends imposing a statutory client's "best interest" standard on advisors, as well as offering recommendations on the use of titles.

Both reports identify "confusion" among consumers as a major impetus for change. For example, the CSA paper cites the infamous mystery shopping endeavour in 2015 by IIROC, MFDA and the Ontario Securities Commission. During that exercise, the "shoppers" encountered 48 titles among the advisors they consulted, "creating confusion concerning proficiency and representatives' status and responsibilities with their firms," the resulting CSA report states.

Ontario's expert committee, on the other hand, wants to "mitigate the noise" around the use of titles pertaining to financial planning-type services. That committee's report notes the plethora of titles, including financial advisor, wealth advisor, retirement planner and wealth coach. As well, the report notes that there are "no uniform or universal regulatory standards regarding the use of titles."

Pierre Lortie, for one, welcomes the efforts regarding titles and designations. Lortie, formerly head of the Montreal Stock Exchange and the author of a recent report on reform in the financial services sector, says that with all the designations and titles in use, consumers find distinguishing advisors' levels of expertise is too difficult.

Lortie also believes that the codification of advisor titles and credentials will happen. "The [advisory] industry itself should address the problem," Lortie says. "If it doesn't, then somebody else is going to address it for them and they might not like the answer." Lortie recommends that consideration be given to creating a professional designation for advisors: "As for other professions, [this] would entail formal training with an agreed curriculum and more extensive continuing education requirements than what presently exist."

The CSA's consultation paper, on the other hand, discusses credentials in the context of moving to a best interest standard for financial advisors. However, there is no consensus on that point among the provinces at this time, with only Ontario and New Brunswick fully embracing the concept of a best interest standard. As part of that discussion, titles and designations are included in the targeted reforms of registration requirements. The CSA paper raises the issue of whether or not "more strictly regulating titles" entails challenges for both registrants and clients.

The CSA paper sets out three alternatives for new designations. The first creates four categories, based on where advisors work and what and how they sell:

> Securities advisor/portfolio manager: This title would apply to representatives at investment dealers or portfolio managers whose firms have a mixed or non-proprietary list of products and who manage discretionary accounts.

> Securities advisor: This title would apply to representatives at investment dealers or portfolio-managers whose firms have a mixed or non-proprietary list of products and who manage non-discretionary accounts.

> Restricted securities advisor: This title would cover representatives who are not at an investment dealer or portfolio-management firm and that has a mixed or non-proprietary product list.

> Securities salesperson: This title would apply to a representative at any firm that has a proprietary product list.

Alternatively, the CSA sets out two other categories: an advisor, which applies to IIROC members at investment dealers and portfolio managers who manage discretionary accounts; all other advisors would be classified as salespeople.

A third alternative would see representatives confined to using their individual category of registration, such as "advising representative" or "dealing representative."

As well, the CSA wants to amend the registration requirements to allow for specific designations. The consultation paper asks whether the CSA should regulate the "use of specific designations" or require firms to review and validate designations used by their representatives: "We expect firms to have policies and procedures on financial designations that will promote greater transparency for potential and existing clients." The comment period was open until Aug. 26.

Ontario's expert committee, whose proposals are more contentious than those of the CSA, advocates a new system of oversight for financial planning. The committee wants existing regulators in securities, insurance and mortgage brokering to oversee those individuals within their ambit who are engaged in financial planning or financial product sales and advice. Advisors who fall outside those jurisdictions should be regulated by the proposed Financial Services Regulatory Authority, a new regulator that Ontario is creating. The expert committee's report also calls for harmonizing financial advisory standards - including education, training, credentials and licensing - to make them subject to "one universal set of regulatory standards."

In addition, the committee's report calls for the adoption of a statutory best interest standard and recommends that the use of titles be prescribed in order to reduce confusion among consumers. The report urges regulators to work together to develop a list of permitted titles and designations and that only those titles be used in the marketplace.

Greg Pollock, president and CEO of the Financial Advisors Association of Canada (a.k.a. Advocis), is cautious about those proposals. He says Advocis agrees with the gaps and inconsistencies identified by the expert committee, as well as its observation that regulatory duplication would be disadvantageous to both the investment industry and consumers.

However, Pollock says, everyone should be inside "one tent" and uses the analogy of lawyers and doctors. "We strongly believe that the solution needs to be holistic in nature, with financial advisors directly involved in their own regulation, similar to other professions such as law and medicine. Absent that, the problems the committee has been tasked to address will continue."

The Investment Funds Industry of Canada (IFIC) states that it agrees with the expert committee and the need for creating regulation of financial planners. IFIC is working with the MFDA to develop continuing education standards for the latter's regulated advisors. The Investment Industry Association of Canada (IIAC) also is broadly supportive of creating more clarity and standardization regarding financial planning. However, the IIAC states that the CSA's definition of financial planning is "far too broad. We believe that a definition that focuses on activity is problematic and would be challenging to regulate."

And IIROC warns that "harmonization may not necessarily mean recognition of a single credential or designation to the exclusion of all others."

One of the challenges in moving to a more lawyer- or doctor-like regulation for financial planning, says Pollock, is that the credentials of those who work as financial advisors are based on the specific regulator that oversees their activities; for example, IIROC or the MFDA.

As a result, credentials and regulation depend on the type of entities that advisors work for. Most professions unrelated to financial advice, however, focus on regulating the credentials and conduct of individual members and care little about the specific entity the individual works for.

Pollock says that this structure is even more resistant to change because many financial planners work in an employee/employer relationship, while many other professionals are self-employed.

Advocis' optimal solution - a professional type of designation - would require replacing some existing regulatory responsibilities long held by various organizations, Pollock says. Doing so, he adds, would be a "difficult political pill to swallow. Are we going to get there? I don't know. We believe [our proposal] is the most efficient way to move forward."

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