Here’s an ugly fact: Right now, anyone anywhere in Canada (except Quebec) can set up shop as a financial advisor or financial planner – even if they have no training or qualifications whatsoever.
How is that possible in a nation practically overrun with securities commissions and financial watchdogs? Simple: We only regulate advice that’s provided in conjunction with the selling of investment products. People who just offer standalone financial advice and financial planning aren’t subject to oversight. They have no registration requirements, proficiency standards, conduct rules or compliance audits.
And they can call themselves anything they want so long as it’s not a term prescribed by statute – which “financial advisor” and “financial planner” are not.
But, thankfully, that’s about to change – in Ontario, at least. Restrictions are in the works aimed at ensuring only people with appropriate credentials from an approved certifying body will be allowed to hold themselves out as financial advisors or financial planners.
The Financial Professionals Title Protection Act, 2019 is a welcome initiative. It will help safeguard investors from being harmed by people who are untrained and have no business using those titles. But this initiative is also limited. It isn’t designed to get rid of sham titles altogether. So, it won’t do anything about all those ersatz “vice-presidents” – a.k.a. top salespeople – plying their trade at investment firms.
Nor will the new legislation clear up the fog created by empty titles such as “wealth manager,” “senior asset specialist,” or the dozens of other labels that dealers and banks invent to portray their advisors as “experts.” And it won’t inject actual proficiency requirements into any of those designations, either.
Ontario’s initiative also won’t require that regulators themselves use terminology ordinary folks can understand. For example, who, other than bureaucrats or policy wonks, has any idea what an approved person is? Do normal people say: “Let me run that past my dealing representative”? No, they don’t. These terms just cause mass confusion anytime the public hears them.
More to the point, though, the new law will prevent non-credentialed people from calling themselves financial planners, but it may not stop them from doing stuff that looks a lot like financial planning.
Just consider what goes on at most banks, mutual fund dealers and other investment firms. They equip their advisors with report-generating software designed to produce personal financial analyses for clients, complete with retirement projections based on detailed income, cash flow and asset-allocation models.
These are high-impact documents, designed to make clients feel they’ve received a professionally drawn-up, personalized financial plan. And clients are encouraged to view the document exactly that way because it’s a critical value-add.
Yet, few of the advisors who prepare these reports hold the certified financial planner (CFP) designation. They’re investment product salespeople, not trained financial planners; but their registration permits them to advise clients about investing and all its component aspects, including the assessment of financial needs, investment objectives, risk tolerance, time horizon and appropriate asset mix.
Moreover, these advisors can validly note that they’re legally obliged to cover off such matters when they formulate investment recommendations. So, they can argue there’s a real and substantial element of financial planning in what they’re required to do for their clients.
This argument is quite compelling – except for one thing: CFPs bind themselves to act in their client’s best interest. Their practice standards make this unequivocal by requiring them to act professionally, place client’s interests ahead of their own, disclose any conflict of interest and resolve it in the client’s favour. In other words, investors can safely presume that a financial plan prepared by an accredited financial planner will be formulated entirely based on what’s best for the client – uncompromised by conflicts of interest.
That’s not the case with advisors who don’t hold the CFP designation. They work under a different standard requiring only that their recommendations be “suitable” for their clients. This standard is more porous in a crucial way: It allows advisors to recommend high-fee investment products and never mention available low-fee alternatives as long as the high-fee ones fit within their clients’ investment objectives and risk tolerance parameters.
It’s true that some organizations that represent investment firms and advisors publish voluntary codes of conduct exhorting their members to act in clients’ best interests. But the fact is these groups are avowed opponents of a mandatory best interest duty being embedded in legislation or regulation. They believe the suitability standard preserves “choice” for investors. As a result, these industry groups insist– and contend openly – that it’s not in clients’ interests for their advisors to be required to act in their best interests.
Don’t expect this stance to change when Ontario restricts use of the financial planner title. Advisors aren’t suddenly going to reverse course on standards to gain accreditation as financial planners, but they’ll still want to give clients those high-impact analyses and they’ll still want clients to regard them as financial plans.
Most likely, therefore, advisors will claim that, functionally, they’re already financial planners. And they’ll argue they should be accredited as such – if need be, by a credentialing organization of their own that’s willing to let someone hold themselves out as a financial planner even though they meet only the suitability standard. Perhaps also even if their familiarity with financial planning principles comes entirely from on-the-job experience and not from years of additional directed study, as currently required for accreditation.
But this almost certainly will enrage CFPs. Their certifying organization, FP Canada, has worked tirelessly to make the CFP designation – and, with it, the title financial planner – a meaningful mark of elevated professional competence coupled with fiduciary responsibility. FP Canada will fight to preserve that distinction.
The Ontario government may not have realized it could be setting off a donnybrook by starting down this road. But now it will be interesting to see which side of this argument the government lets prevail, and whether it chooses to protect only the outward title of financial planner or also the underlying nature of financial planning itself.