Financial advisors and their firms will likely be facing a new accreditation landscape in the years ahead as a host of regulators and industry groups are calling for new proficiency standards. However, some industry participants strongly object to some aspects of the emerging proposals, especially those from the Mutual Fund Dealers Association (MFDA).
The MFDA has just wrapped up a second round of consultations on its proposed new continuing education (CE) requirements for reps and supervisory personnel, with a comment period that closed April 28. (The first round of consultations followed a discussion paper on CE requirements for mutual fund dealers released in June 2015).
As a result of these and other consultations over the past few years, it’s clear that industry participants are generally onside with enhanced CE standards for advisors. However, there are concerns.
Among the complaints, some industry spokespeople are critical of the MFDA’s intention to provide educational offerings for CE credits. The MFDA has proposed that it produce the content of a CE requirement for advisors, representing at least one compliance credit annually, likely in the form of a webcast.
The MFDA is also proposing that every approved person must complete 10 business conduct credits, 20 professional development credits and two MFDA compliance credits during every 24-month cycle beginning on Dec. 1 of odd numbered years, adding up to a total of 32 credits every two years.
The MFDA’s proposal to exclusively sell at least two credits per cycle is beyond the MFDA’s regulatory mandate and is anti-competitive, according to a strongly worded submission from Callum James, vice president, regulated professions, at Oliver Publishing Inc. of Toronto. “It will discourage job creation, innovation and investment in education,” he says.
James has serious concerns about the MFDA charging for courses and “selling goods and services in the market it regulates,” effectively engaging in business activities rather than regulatory activities.
“It is a conflict of interest when a regulator is both the policy maker and direct financial beneficiary of its policy,” Callum says. “Such a conflict of interest will undermine the credibility of the proposed policy. The MFDA’s core competency, as a regulator, is not to create and deliver courses.”
James suggests that the MFDA’s role be limited to setting and maintaining proficiency standards, identifying strategic learning issues and compliance topics and ensuring the integrity of the CE program.
Laurie Clark, president and CEO of the Smarten Up Institute, also stresses in her submission that the MFDA shouldn’t be an education provider, saying it’s a conflict of interest and undermines the MFDA’s credibility as a leader and regulator that should be maintaining a position of impartiality.
“Even if it remained doing a once a year webinar on the activities of the MFDA and it qualified for compliance credits for the C-level suite,” Clark says, “it is absolutely against the mandate the Ontario Securities Commission has set for the MFDA.”
Furthermore, Clark says in an interview with Investment Executive that the MFDA shouldn’t become involved in building the technology to track and monitor firms and advisors’ adherence to its policies when these technological capabilities can be purchased from more efficient, best-of-breed providers.
“Technology isn’t the core competency of a regulator, and invariably they get it wrong, or spend too much money unnecessarily,” she says. “It’s better to use an experienced industry provider that won’t cause cost overruns that will be paid for by the MFDA members this is designed to help.”
Sandra Kegie, president of the Federation of Mutual Fund Dealers, also questions the value and cost of the creation of an MFDA proprietary database to track CE credits in her submission, pointing out that alternative tracking programs already exist. Compliance with the MFDA’s requirement should be the responsibility of member firms, she says, subject to audit by the MFDA.
Kegie adds that the MFDA should avoid expanding its role to perform accreditation functions or become a provider of courses, even a compliance credit specifically focused on the mutual fund dealer channel.
However, Gary Legault, vice chairman of the Association of Canadian Compliance Professionals and founder of Toronto-based Legault Compliance Consulting, says he does not see a problem with the MFDA’s participation as a provider of some material.
“We would only want to be certain of the ability of any tracking system to provide reports in the timely manner that’s needed,” he says. “For example, if a firm brings on a new advisor, it would be important to identify where he or she as at in terms of progress in obtaining the required CE credits. We would want reassurance that if an advisor fails to do something at dealer where previously employed that the liability doesn’t carry over to a new employer.”
Under the provisions in the MFDA’s second consultation paper, firms could be fined $2,500 for reps that don’t meet the CE requirements and $500 for failing to meet their reporting requirements. Reps would have their registration suspended until they get their credentials up to snuff.
The Investment Funds Institute of Canada (IFIC) recommends in its response to the MFDA’s proposals that the MFDA consider pre-approving certain courses; make it easier for reps to return to the industry after an extended absence (due to a maternity leave for example); and give reps that fail to fulfill their CE obligations more time to comply before their registration is suspended.
This is somewhat different from the Investment Industry Regulatory Organization of Canada (IIROC). Under IIROC’s existing rules, when reps don’t complete their required training on time, their firm is fined $500 per month until they get in compliance. If the lapse reaches six months, the rep has his or her licence suspended until he or she complete the required training.
However, IIROC is contemplating several changes to its CE program that would, among other things, bring its program more in line with the framework the MFDA is developing. For example, IIROC is proposing to change its approach to non-compliance from the current system to a one-time fine of $2,500 for the dealer and an automatic suspension for the rep, which would be in line with the MFDA’s proposed approach to non-compliance.
IIROC is also proposing to shift from its current three-year CE cycle to a two-year cycle (also in line with what the MFDA is considering) along with proposals to extend CE requirements to all registered employees (not just reps); to bring the CE course review function in-house; and,to alter its existing grandfathering provisions. These proposed changes are out for comment until May 12, although the deadline for comments on future phases of its CE program review is June 30.
As the self-regulatory organizations work to enhance their proficiency regimes, the topic of CE is also catching the attention of the provincial authorities. The Canadian Securities Administrators (CSA) also flagged the lack of an explicit CE requirement as a deficiency within the existing regulatory framework In its consultation paper on a proposed “best interest” duty and a series of proposed “targeted reforms” that was published in the spring of 2016.
The CSA has proposed the introduction of a CE requirement that would address core regulatory obligations such as conduct standards, know-your-client and know-your-product obligations, requirements for dealing with conflicts of interest and ongoing ethics training.
At the same time, Ontario is considering enhancements to industry proficiency requirements, including that regulators establish proficiency standards for financial planners that include industry experience and CE requirements alongside initial licensing requirements.
Photo copyright: tashatuvango/123RF