: Amin Mawani - Submission

May 10, 2016

Expert Committee to Consider Financial Advisory
and Financial Planning Policy Alternatives
c/o Frost Building North, Room 458
4th Floor, 95 Grosvenor Street
Toronto, Ontario
M7A 1Z1

Dear Committee Members:

Thank you for this opportunity to offer my thoughts on the subject.

First of all, I think the matter of licensing financial advisors is getting more acute by the day, and lack of action will likely mean that consumers will be increasingly unprotected. I base this opinion on my observation that financial institutions are increasingly hiring our Business School’s marketing graduates and attempting to teach them basics of financial planning instead of hiring our financial planning graduates and teaching them the basics of marketing.

Your Preliminary Recommendations states that you would prefer to “leverage the existing framework” (page 5). In my opinion, the current regulatory framework is largely incomplete and not protective of very many consumers’ concerns. Before relying on the existing framework, your committee should establish that the existing framework is indeed protective of consumers. For example, a (major blue chip) insurance company withdrawing monthly premiums from my chequing account on the 20th of every month can (and did) unilaterally decide to withdraw the same amounts on the 14th of every month without my authorization, and the Financial Services Commission of Ontario has no rules in place to disallow such early withdrawals. This happened to me, and I can offer all evidence of paperwork. I did not detect early withdrawals until several years later, and at a significant cost.

Another example is that not all financial institutions administer their customers’ TFSA accounts the same way, and subtle differences could be costly to the account holders down the road. In most provinces, TFSA account holders have a choice in their TFSA contracts to designate their spouse or common law partner as a successor holder or anyone else as a beneficiary, or both.

A surviving spouse named as a successor holder in the TFSA contract becomes the new holder of the TFSA immediately upon the death of the original plan-holder, and the assets remain continuously sheltered inside a TFSA.

The successor holder can make tax-free withdrawals from the deceased holder’s TFSA after taking over the ownership of the deceased holder’s plan, and can continue having their own TFSA plan with their own contribution limits unaffected by having assumed ownership of their spouse’s account. The successor holder could also merge the two separate TFSA accounts.

A beneficiary designation also allows the surviving spouse to retain the tax-sheltered status of the TFSA, but only up to the market value of the assets in the TFSA at the time of the original owner’s death. Any increase in value of the assets inside the TFSA between the original owner’s death and the transfer to the beneficiary’s plan does not qualify for the TFSA’s tax sheltering benefits.

As a result, a successor holder designation is usually better than a beneficiary designation for a surviving spouse.

Most provinces allow a TFSA holder to designate both a successor holder and a beneficiary. If the original holder and the successor holder die at the same time, the beneficiary can get the money without having to go through probate. In such contexts, most plan holders would prefer to designate both a successor holder and a beneficiary.

While most financial institutions’ TFSA contract forms offer account-holders the choice of designating both a successor holder and a beneficiary, some do not. Canadians opening up new TFSA accounts need to be careful before signing these legally binding contractual provisions. Understanding the differences between successor holder and beneficiary is difficult enough without having the financial institutions not offering all the choices available under the law. Financial planners (both with and without professional designations) working in financial institutions usually offer advice that is consistent with their banks’ legally approved forms. It can be hard to undo what has been legally agreed to and signed by the original plan holder. These TFSA documents are legal contracts.

The options available under the law in this context are of significant value, and TFSA plan holders (13 million as of 2014) should review their legal agreements to verify that their choices reflect what is in their best interests given what is available under the law.

If the banks and the professional licensed advisors working for them are working from incorrect forms, how can they serve the best interests of the consumers? Once again, this is based on my own personal situation, thereby allowing me to offer all the evidence.

Finally, I think your scope should include all advisors since otherwise the firms will carve out a larger role for unregulated advisors to minimize their regulatory exposure. An escape provision for unregulated advisors will force consumers in a caveat emptor position, and perhaps undo many of your protective features.

Thank you once again for this opportunity.

Sincerely,

Amin Mawani, MA, LL.M, PhD, FCPA, FCMA, CFP, FELLOW of FPSC
Associate Professor of Taxation – Schulich School of Business at York University