Kudos to the Mutual Fund Dealers Association of Canada (MFDA) for taking on the shameful lack of standards for financial planners. If nothing else, perhaps the MFDA’s stand finally will inspire government policy-makers to tackle the issue once and for all.
By itself, the MFDA can’t do much to fix the problem. The self-regulatory organization has authority only over mutual fund dealers and their reps. So, even if the MFDA succeeds in agreeing on proficiency requirements for fund dealer reps who want to call themselves financial planners, the reality is that consumers will be protected only when they are dealing with fund dealers. There still won’t be anything preventing consumers from falling prey to unqualified planners in other financial services industries, or even to self-proclaimed planners with no industry affiliation.
To address the problem in an effective way, the regulation of financial planning will have to start with a government authority that has the ability to enforce the law, regardless of industry. And regulation must go beyond mere proficiency requirements. While having properly qualified planners is certainly important, so must planners be incented to provide high-quality advice that’s in the best interests of their clients.
Absent a compensation model and conduct standards that ensure that a planner is working solely on behalf of his or her client, consumers won’t fully be able to trust in, and rely upon, the advice they receive.
You can have all the qualifications in the world, but if you aren’t rewarded for doing the right thing, chances are that doing so will be tough. Even doctors can be susceptible to incentives from drug companies and medical device makers that can skew treatment recommendations.
There’s no question that there can be tremendous value in high-quality financial advice, but if consumers can’t be confident that’s what they are receiving – either because they’re uncertain about their planners’ qualifications or because a third party is paying the bill, or both – then the value of that advice is crucially undermined.
For the sake of both genuine financial planners and investors alike, we should hope that meaningful regulation is finally on the way.
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