The recent introduction of a private member’s bill that aims to regulate financial advisors in the Legislative Assembly of Ontario has already received considerable coverage from both the industry and mainstream media. But we need to take a more detailed second look as many financial planners and advisors may not be aware of the act’s overreaching potential as well as who they may ultimately be reporting to if the bill becomes law.
In particular, financial advisors or financial planners should be concerned with three issues in Bill 157: An act to regulate financial advisors, which was introduced by Rick Bartolucci, a Liberal member of provincial parliament (MPP) for Sudbury, Ont.:
> Issue 1 is that the regulations in the act governing the financial advisor, and his or her advice, is very prescriptive and intrusive.
> Issue 2 is what body will ultimately oversee this act?,
> And Issue 3 is how does this act fit in with the Ontario government’s sponsored consultations on regulating financial planning in Ontario, considering that Bill 157 was introduced by a member of Ontario’s Liberal provincial government? Are you confused?
Before presenting further analysis, you may be asking why should you be concerned about Bill 157, as it’s a private member’s bill (and such bills normally do not get passed because they need all-party support) and only applicable in only one province,? But the reality is that you should be concerned because some of the provisions in the act are trial balloons for subsequent government legislation on the issue. Furthermore, what happens in one province can easily spread to all the other provinces — much like seat belt did in the 1970s and 1980s.
Like any act, there are valid rules that are hard to argue against. Generally, the regulations presented in this bill include: that financial advisors are to be registered — although the definition of such is somewhat broad and vague; the introduction of a common complaints process and authority to deal with them; the introduction of a code of ethics for financial advisors; new education and insurance provisions; and penalties for not complying with the act.
Although we can all agree that these provisions are good for consumer protection, what about financial advisors?
The act starts to get very prescriptive in the regulations under Section 45: lieutenant-governor in council regulations, mentioned earlier as Issue 1. The list is exhaustive, but let me highlight a few interesting ones: The director administering the act may require that advertising be pre-approved before publication to prevent false advertising. Another regulation is prescribing the information that a financial advisor must disclose to a client or to another registrant, and prescribing rules for the offices of financial advisors.
Although these detailed regulations are debatable, any oversight body will need great expertise. If you read the act, then it’s very apparent that the oversight of this act can be delegated down from the lieutenant-governor in council to the minister of finance; then, he or she can delegate an administrative authority to oversee the act in its entirety, or parts of it. (For clarity, an administrative authority is an independent body that’s empowered to execute the act for the government, but the government must approve any changes to the act.)
This points me to Issue 2, which is, who will be empowered to oversee the act? Will it be an existing regulator? A new government authority? Or perhaps an existing non-regulatory industry organization? The regulators have spent years understanding the issues the act is attempting to deal with, so let’s hope that the government will use their expertise and not turn the act’s oversight to a new and untried delegated authority.
Finally, there’s Issue 3, which is how does the act affect the need to regulate financial planning as a profession, such as the legal and accounting? I trust that the Ontario government, which is studying the regulation of financial planning, will not use this act as a means to regulate financial planning, but rather allow financial planning to be unique as a profession.
In conclusion, Bill 157 should concern financial advisors and financial planners with its detailed overreach, uncertain oversight body and conflicting objectives with regulating financial planners. On the other hand, this act is a private member’s bill, which means it’s highly unlikely to pass.
Thus, the government should take the good ideas from Bill 157 and allow existing regulators to oversee them, but only after they amalgamate the Ontario Securities Commission with the Financial Services Commission of Ontario, and the Mutual Fund Dealers Association of Canada with the Investment Industry Regulatory Organization of Canada. This new streamlined regulatory structure is best to achieve this act’s objectives.