: Canadian Bankers Association - Submission

Box 348, Commerce Court West
199 Bay Street, 30th Floor
Toronto, Ontario, Canada M5L 1G2

Andrea Cotroneo
CBA General Counsel & Corporate
Tel: (416) 362-6093 Ext. 214
acotroneo@ cba.ca

June 17, 2016

Delivered Via Email

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

Dear Expert Committee:

The Canadian Bankers Association (CBA) works on behalf of 59 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 280,000 employees. The CBA advocates for effective public policies that contribute to a sound, successful banking system that benefits Canadians and Canada's economy. The CBA also promotes financial literacy to help Canadians make informed financial decisions and works with banks and law enforcement to help protect customers against financial crime and promote fraud awareness.

The CBA appreciates the opportunity to provide input to the Expert Committee in response to the Committee's consultation document issued on April 5, 2016 which sets out the Committee's preliminary policy recommendations with respect to the regulation of financial planning and provision of financial advice (the Consultation Document). Financial planners and providers of financial advice play an important role in assisting Ontarians in meeting their financial goals, which adds greater strength and stability to the province's economy. In order to promote consumer confidence in the financial planning and advice sector, the CBA generally supports regulation of individuals and entities in the sector that are currently unregulated. Such regulation needs to be carefully crafted so that it does not duplicate existing requirements applicable to those who offer financial planning services and are in a regulated channel, and is not unduly broad in scope. We have set out comments below on each set of the Committee's recommendations.

Regulation of Financial Planning in Ontario

The Consultation Document recommends the following:

  • Regulation be required of any individual or firm that provides financial planning services either expressly or implicitly through holding out by way of titles, described services or otherwise.
  • Individuals and firms that provide financial planning services and whose financial product sales and advice activities are regulated by the existing framework for securities, insurance and mortgage brokering should have any associated financial planning activities regulated by their existing regulator or regulators.
  • Financial planning activities outside the current regulatory framework should be regulated by the proposed Financial Services Regulatory Authority (FSRA).

In the CBA's September 2015 submission on the Committee's initial consultation document issued in June 2015, we had noted our support for the regulation of financial planning services. We view financial planning services as involving the provision by the financial planner to the client of advice relating to the longer-term formulation and management of financial goals, risk management, planning of investment strategy, complex insurance needs, personal taxation, retirement financing and estate matters, as well as the legal implications associated with these areas1. In other words, we view 'financial planning services' as comprehensive, holistic and inherently longer-term in nature. Therefore, we supported basing the regulation of financial planning on the use of the title 'financial planner'. In order that individuals not try to avoid regulatory capture by using a different title, we also support regulating those individuals who are found to be providing comprehensive financial plans but were not holding themselves out as a financial planner.

By including 'financial product sales and advice' in what should be regulated, it appears that the Committee's recommendation on this point could capture what we would call 'transactional' or one-off provision of financial advice or products to clients. Attempting to regulate financial planning on a transaction basis rather than the use of titles or otherwise holding out as a financial planner is problematic as it captures financial advice incidental to the sale of products - products which are already highly regulated under applicable securities or banking regulation. We reiterate our support for regulating financial planning only, on the basis of those holding themselves out to the public as 'financial planners'; if individuals are found to be offering or providing comprehensive financial plans to clients, they should also be regulated as financial planners. In short, we urge the Committee to restrict new regulation to those relying on the title 'financial planner' with general anti-avoidance measures built into new legislation.

In order to further the objective of avoiding conflicting or duplicative requirements, we support the Committee's recommendation that those individuals and firms that provide financial planning services and whose financial product sales and advice activities are regulated by the existing framework for securities, insurance and mortgage brokering should have any associated financial planning activities regulated by their existing regulator(s).

With respect to the recommendation that financial planning activities outside the current regulatory framework be regulated by the proposed FSRA, we believe it is imperative that charging a new agency with this responsibility should not result in a loss of the knowledge, expertise and experience that sits with existing standards-setters for financial planning in Canada. While we acknowledge that any new regulatory agency will have to undertake its own analysis of standards for ethics, competence and continuing professional development for financial planners, leveraging off current standards would facilitate the transition of financial planners, consumers and other market participants to a new regulatory regime.

Harmonization of Standards

The Consultation Document recommends that the education, training, credentialing and licensing of individuals engaged in financial planning should be harmonized and subject to one universal set of regulatory standards.

The CBA supports this recommendation. As Canadian banks operate on a national basis, we also note our support for harmonization of financial planning standards and regulations across the country.

We also recommend that multiple organizations, rather than a single, prescribed provider, be accredited to educate, train and license individuals engaged in financial planning. Further, individuals whose existing credentials meet or exceed the harmonized standards should be grandfathered under the new regime. Those individuals whose existing credentials do not meet the harmonized standards should be permitted to upgrade their qualifications rather than undergo the full licensing process.

Statutory Best Interest Duty (SBID)

The Consultation Document recommends the following:

  • An SBID should be adopted and applied to all individuals and firms that provide financial product sales and advice and/or financial planning in Ontario. SBID should be based on a uniform and codified standard of care.
  • The Expert Committee refers to the SBID as a 'legal duty of care', and further describes the SBID as 'an explicit obligation designed to ensure that clients' interests are put first and conflicts are avoided'.

The CBA has significant concerns about the recommendations relating to the SBID. First, given the multiplicity, complexity and interdependence of the factors involved in providing a comprehensive financial plan, and the inherent subjectivity of the exercise, a clear standard against which compliance can be measured will remain elusive, and will result in confusion and a further disconnect between (misplaced) consumer expectations and the provision of financial planning activities.

Second, we believe that the broad and vague definition of SBID, if adopted, will give rise to significant uncertainty among market participants, especially with respect to whether the SBID rises to the level of a fiduciary duty at law. While we understand that it is not the Committee's intent to have the 8810 be implemented as a fiduciary duty, it is possible that the SBID will be interpreted as such by the courts and, therefore in time, by market participants.

Finally, we had noted above our concerns regarding the recommended regulation of financial product sales and advice. These concerns are exacerbated by the recommended SBID. Given the extremely broad scope of the definition of 'financial product sales and advice', individuals at banks and other organizations that serve as customer service representatives and merely direct customers to products that they are inquiring about could be subject to an analysis of whether they acted in the customer's best interests. The result could be that such individuals would not be permitted to direct customers to products or respond to even straightforward requests for information about products and services. This would be a very negative outcome for both customers and bank personnel, and would undermine the bank's relationship with customers.

Exemptions to SBID

The Consultation Document states that the only exceptions that should apply to the proposed SBID are in the following circumstances:

  • The individual or firm is already subject to a SBID by virtue of their licensing and registration requirements (e.g. portfolio managers);
  • The individual or firm is already subject to a professional legal standard of care and fiduciary duty, and the advice being provided is solely incidental to their principal business or profession which is also regulated (e.g. lawyers and accountants); and
  • The individual or firm is a mere "order taker," and no financial advice is being provided to the customer, and the individual or firm is exempt from suitability requirements (e.g. discount brokers).

If the SBID is adopted, we support the first two recommendations regarding where exemptions should apply. Regarding the exemption for "order takers", we believe that these individuals and firms should not be captured under the proposed regime, as they do not provide financial planning. As such, in our view, an exemption is unnecessary.

In April 2016, the Canadian Securities Administrators (CSA) issued a proposal to enhance the obligations of advisers, dealers and representatives toward their clients. Any decision regarding the imposition of a SBID should be made after the CSA has concluded its review of the best interest standard and has made a recommendation in order to avoid duplicative requirements.

Referral Arrangements

The Consultation Document recommends the following in respect of referral arrangements:

  • No individual or firm that provides financial product sales and advice or financial planning should be permitted to pay a referral fee to a third party for the referral of a customer who is to be provided with such services, unless the person or firm receiving the referral fee is regulated as a provider of such services and owes a best interest duty to consumers.
  • There must be full transparency regarding the referral arrangement, including compensation.

This recommendation is inconsistent with the rules applicable to referral arrangements under securities regulation, which does not contemplate both entities having to be subject to the same regulation or a best interest duty. This would appear to prohibit referrals to third parties such as lawyers and accountants who may not be regulated as providers of financial planning services, but are comprehensively regulated under the rules of their governing professional body. Further, if the CSA does not proceed with the imposition of a best interest duty, this would also prohibit referrals to investment advisors and dealers for purchases of securities for the benefit of the customer's financial plan. The proposed restrictions around referral arrangements are not necessary, and could limit the availability of third-party resources to consumers. We believe that any concerns about conflicts of interests arising as a result of referral arrangements are mitigated by requiring transparency and disclosure around fees paid as part of the arrangement.

Titles and Holding Out

The Consultation Document states that the use of titles by those who provide financial product sales and advice and/or financial planning should be prescribed, and that:

  • Regulators should work together to develop a circumscribed list of approved titles. These should be the only titles permitted to be used by individuals and firms in their financial product sales and advice and/or financial planning activities;
  • Use of the title "Financial Planner", whether explicitly or by holding out, should be circumscribed to individuals regulated as outlined in recommendations 1 and 2 above;
  • Individual designations, qualifications, and credentials (other than professional, academic qualifications, and those approved by the regulators) should not be permitted; and
  • Those engaged in providing these services should not be permitted to use corporate positions or titles.

As noted above, before considering the use of titles, the scope of the term ''financial product sales and advice" must be narrowed. With this narrowed definition, applicable standards for the use of the term "Financial Planner'' would apply. However, an individual that holds dual or multiple functions within an organization should not be prohibited from using employment titles in addition to the term "Financial Planner". For instance, an individual that provides mortgage brokerage services should not be prohibited from displaying such employment title in addition to their position as a "Financial Planner".

Central Registry

The Consultation Document recommends the creation and maintenance of a single, free, comprehensive central registry, with adequate resources to provide a one-stop source of information for consumers regarding the licensing and registration status, credentials and disciplinary history of individuals and firms that provide financial product sales and advice and/or financial planning to Ontarians.

In order to assess this recommendation, we will need more details about the proposed registry, including who would be responsible for entering information into the registry and maintaining the accuracy of that information. In preparing its final report to the Ontario government, it may be helpful for the Committee to look at the advisor registration database maintained by the provincial securities commissions and the Investment Industry Regulatory Organization of Canada (IIROC). On the securities side, the commissions and II ROC are responsible for entering the relevant data and maintaining its accuracy; we believe that it would also be appropriate in the financial planning context for the regulatory authority to be responsible for the central registry. However, the Committee should remain cognizant of the cost associated with developing and maintaining such a database.

Financial Literacy and Investor Education

The Consultation Document states that financial literacy and investor education of Ontarians should be supported and actively encouraged in Ontario by government, regulators, public and private schools, non-profit organizations and the financial services industry.

The CBA and the banks are committed to supporting and actively promoting financial literacy for Canadians through a number of channels and initiatives. We believe that it would also be helpful for the regulatory authority in charge of financial planning regulation to maintain its own resources for consumer and investor education, as is currently done by a number of provincial securities commissions.

Issues for Further Consideration

The Consultation Document indicates that the Ontario government should give further consideration to the following issues:

The need for simplified complaint and restitution mechanisms for consumers of financial planning and financial product sales and advice;

A simplified approach to the investigation, prosecution and adjudication of consumer complaints related to regulatory offences in the provision of such services; and

A consumer-friendly process for recovery of financial losses by consumers.

We note that there are a number of complaint escalation and dispute resolution processes already in place at banks and their subsidiaries, which are mandated to handle consumer and investor complaints and disputes. Banks and their subsidiaries have internal complaint escalation and dispute resolution processes, including an internal Ombudsman. Banks are also required under the Bank Act to have third-party dispute resolution bodies to which they would refer consumers, such as the Ombudsman for Banking Service and Investments (OBSI). The Financial Consumer Agency of Canada also oversees banks' interactions with customers and provides another venue through which customers can raise complaints for resolution. At the subsidiary level, securities subsidiary clien1s can raise complaints/disputes for resolu1ion with OBSI, as well as internally as noted.


We thank the Expert Committee for this opportunity to provide our views on the Consultation Document. Please do not hesitate to contact me with any questions regarding our comments.



1 Referred to herein in short form as “comprehensive financial plans.