UNDER THE CURRENT regulatory framework, anyone can hang out a shingle and call him- or herself a financial planner, but if regulators have their way, that may no longer be the case for fund dealer reps.
In early September, the Mutual Fund Dealers Association of Canada (MFDA) issued a consultation paper that proposes to tackle the long-standing issue of the indiscriminate use of the title “financial planner.” The MFDA is considering the development of rule amendments that would establish proficiency requirements for fund dealer reps who want to market themselves as planners.
The fact that there are no minimum qualifications for planners has long been an issue bedevilling the Canadian financial advisory business. The lack of standards leaves investors both uncertain about advisor proficiency and exposed to the risk of receiving poor financial advice. And at the same time, the lack of standards undermines the ability of well-qualified planners to distinguish themselves in a crowded marketplace.
Although there is no shortage of planning-related designations on offer, the lack of a clear, objective standard remains as critical difficulty – and it has been an issue for many years.
In fact, more than 20 years ago, a seminal report on the then-fledgling Canadian mutual fund industry by securities lawyer Glorianne Stromberg first identified the problem. In her 1995 report, Stromberg recommended that no one should be able to call themselves a planner (or any title that suggests planning proficiency, for that matter) unless they meet certain educational and industry experience requirements (including five years working under the supervision of a qualified planner), and that planners be required to be registered with a securities commission. At the time, Stromberg said regulation of planners is “essential in the public interest.”
The MFDA’s latest proposals won’t fulfil Stromberg’s proposals. The MFDA, as a self-regulatory organization (SRO), has the authority only to set requirements for fund dealers and their reps. This authority wouldn’t affect brokers, bankers, insurance agents or anyone else who decides to employ the planner label. Nevertheless, the SRO’s proposals would bring some standards to the reps that do come under the MFDA’s jurisdiction.
The decision to use the financial planner title by fund dealer reps arose from MFDA’s increasing emphasis on education and proficiency, says Karen McGuinness, the MFDA’s senior vice president of member regulation, compliance. The MFDA also proposes a new continuing education requirement and proficiency requirements for reps selling exchange-traded funds.
And, as the SRO notes in its paper, the complete absence of standards for planners means “there is significant potential for investors to be misled as to the qualifications of any individual using this title.”
The MFDA’s proposals seek to address this concern by establishing criteria for reps who call themselves planners. The paper proposes a list of the most common planning designations – including the certified financial planner designation offered by the Financial Planning Standards Council; the Institut québécois de planification financière’s designation, known as the FPl; the personal financial planner accreditation from the Canadian Securities Institute; and the Institute of Advanced Financial Planners’ registered financial planner designation – and seeks input on whether these credentials should be considered adequate qualifications for planners working in the fund dealer business. The MFDA’s paper also asks whether there are other, less common designations that should be included. And the paper seeks feedback on whether existing reps should be grandfathered under the new rule (and, if so, what the criteria to qualify for grandfathering should be).
The MFDA’s consultation paper is out for public comment until Dec. 4. If the SRO decides to go ahead with a rule change, that proposal would have to go through the normal public comment process before being finalized. Interestingly, the MFDA is not planning to publish the comments that it receives on this initial consultation paper – instead, the SRO states, it will publish a summary of the comments that it receives.
In the meantime, the broader problem of the lack of planner regulation is being studied by a committee in Ontario that was appointed earlier this year by the provincial government. That committee is expected to provide its recommendations to the government in early 2016. Issues of proficiency and the use of titles are topics that the committee is mandated to examine.
Investor advocates such as the Investor Advisory Panel (IAP) – the independent group created by the Ontario Securities Commission to represent investor interests on regulatory issues – are hoping that committee will call for restrictions on the use of the financial planner title throughout the industry.
The IAP’s submission to the committee demands that planners be required to meet some minimum proficiency standards: “It is simply unacceptable that anyone in Ontario today can call themselves a financial planner (or advisor, or seniors specialist, for that matter) with no formal training or proficiency requirements.”
Among other recommendations, the IAP calls for titles to be regulated so that they clearly indicate the sort of advice that a rep is qualified to provide and the types of products that a rep is allowed to recommend. The IAP’s submission adds that these requirements should be accompanied by educational, licensing and ethical requirements that are established independently and in the best interests of investors.
Although the case for regulating planners has long been argued, achieving that has proved much more difficult. So far, Quebec is the only jurisdiction in Canada that has managed to do so.
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