: Central 1 Credit Union - Submission

Expert Committee to Consider Financial Advisory
And Financial Planning Policy Initiatives
c/o Frost Building North, Room 458
4th Floor, 95 Grosvenor Street
Toronto, Ontario
M7A 1Z1
Fin.Adv.Pln@ontario.ca

June 17, 2016

Dear Sirs and Madam,

Central 1 Credit Union (“Central 1”) congratulates the Expert Committee on its preliminary policy recommendations around financial planning and advisory services in Ontario. We welcome the opportunity to provide comments on the initial recommendations as part of the committee’s consultations.

Central 1 is the trade association, liquidity and wholesale financial services provider for 74 member credit unions in Ontario and their 1.3 million members as well as all 42 credit unions in British Columbia.

Credit unions are full service cooperative financial institutions legislated under the Credit Union and Caisse Populaire Act, 1994. Like other financial institutions, we provide the banking, investment and financial planning services that our members require. Our cooperative governance structure is what makes credit unions unique and member-centric by design - the strongest form of consumer protection. Our members are our owners and each credit union is governed by a Board Directors which is elected from the member-base. This creates an intrinsic sense of accountability to the fellow membership and community.

Credit unions recognize, however, that there may be significant latitude and a variety of consequences for individuals and organizations who operate financial planning services outside of an Act or who fail to comply with voluntary standards. Central 1 and the credit union community is pleased and wholeheartedly supports the government’s efforts to enhance consumer protection of financial planning and advisory services in this regard.

We look forward to working with all stakeholders towards a solution.

Executive Summary

As was stated in the original consultation paper by the Expert Committee, currently in Ontario, “no general legal framework exists to regulate the activities of individuals who offer financial planning, advice and services.” Central 1 and the Credit Unions of Ontario propose that the government regulate the financial planning profession by codifying the oversight that already exists, but that is currently voluntary.

Specifically, we recommend that:

  • Financial planning activity should be regulated;
  • Financial planning activity of individuals holding an existing financial services license should be regulated by the licensing regulator;
  • Individuals not holding a license but who undertake financial planning activity should be required to register with, and have their activity regulated by experts that understand the industry;
  • Financial planning standards should be harmonized, but done so in a practical manner;
  • The title financial planner and other related titles, or holding out as such should be restricted, and misleading titles should be eliminated;
  • There should be a consumer friendly central registry;
  • Stakeholders should support financial literacy efforts;
  • Referral arrangement language should focus on appropriateness, transparency and disclosure instead of limitations;
  • Instead of introducing a new “Statiutory Best Interest Duty” (SBID), potential conflict of interest matters should be left to the CSA to avoid duplication.

These principles guide the recommendations by Central 1 to the Expert Committee.

1. Regulation of Financial Planning in Ontario

The credit union system supports the recommendation by the Expert Committee to regulate the financial planning profession in Ontario, given the considerable number of people who rely on financial planning service providers to guide their financial decisions. Building on this, credit unions recommend that the industry be regulated by experts who understand the field, and that an emphasis be placed on regulatory alignment across Canada. It should be noted, however, that the committee’s scope may be too far reaching. Credit unions caution against sweeping regulation of financial planning activity, which could have unintended consequences. As credit unions, we are concerned about social responsibility. Many individuals who are under-served in the banking world turn to credit unions or community groups for assistance. Given the definition of what consitututes financial planning activity, some service providers may fall under this requirement and the committee could run the risk of eliminating basic financial planning services to those who need it the most in our province. We would ask the committee to carefully consider the unintended consequences of regulating activity and focus on standards and title restriction.

Regulatory Body

The Expert Committee recommends that the regulation of stand-alone providers of Financial Planning services should be done through the newly proposed Financial Services Regulatory Authority (FSRA), however, credit unions believe this would only lead to further fragmentation in an already complex and busy system. Credit unions also feel that a provincial regulator has too narrow a focus. One complexity, for example, is if a business operates in a particular jurisdiction as a branch, which is a different jurisdiction than its head office. It can be more difficult for organizations to train existing employees and recruit new employees from across distribution channels. It should also be noted that the proposed FSRA does not yet exist, and is currently assumed to also be a provincial regulatory body for a number of sectors including but not limited to pensions, credit unions, insurance companies, mortgage brokers, etc. It could be years before this new body is established.

The Financial Planning Standards Board (FPSB) is in a unique position to be the regulatory body as they have been regulating the financial planning profession for over two decades. The FPSB also has an international network of 150,000 individuals who have earned Certified Financial Planner® certifications in 26 countries across the globe.1 This model has been self­funded by those licensed professionals through their yearly dues and license renewals. Within Canada, a branch of the FPSB known as the Financial Planning Standards Council (FPSC) has a unified standard for the financial planning profession across the entire country including in the province of Quebec. To date, the FPSC has licensed over 22,000 financial planning professionals across Canada.2

There are also numerous examples of other professional bodies in Ontario which include medical professionals (the College of Physicians and Surgeons of Ontario, CPSO) and lawyers (the Law Society of Upper Canada, LSUC). The CPSO has been in service for over 150 years and is the body that regulates the practice of medicine to protect and serve the public interest.3 It receives its authority via the Regulated Health Professions Act (RHPA), the Health Professions Procedural Code under the RHPA and the Medicine Act. Similarly, the LSUC has been around for over 200 years and regulates, licenses and disciplines Ontario’s more than 49,000 lawyers and over 7,900 licensed paralegals pursuant to the Law Society Act and the Law Society's rules, regulations and guidelines.4 This model enables these professional bodies with regulatory powers through legislation, while the bodies themselves regulate the profession.

2. Harmonization of Standards

Moving from a patchwork of standards and regulations that currently exists in multiple sectors across Canada to a centralized body or coordination of standards is essential to ensure consistency across the financial planning profession. The goal is to find commonalities, identify critical requirements that need to be retained and ultimately reduce complexity and simplify the process by leveling the playing field. Credit unions caution that harmonizing standards is not without its disadvantages, if done impracticly. Would financial planners that already have a designation need to comply with and obtain new licencing through a new body? Credit unions suggest that some form of mutual recognition and conformity be adopted to avoid unnecessary cost, particularly to smaller institutions.

3. Statutory Best Interest Duty

In the interim report, the Expert Committee suggested that a “Statutory Best Interest Duty” (SBID) be adopted for all individuals offering financial products, sales and advice or planning in Ontario. For many individuals and organizations, the committee is suggesting the introduction of a new standard of care that is duplicaticative of obligations that already exist. While we recognize the need and value of a SBID for those operating outside of any regulatory framework, credit unions see value in the already existing set of guiding principles proposed by the Canadian Securities Administrators (CSA)5. In the spirit of avoiding further duplication, we feel the CSA would be a better suited place to start the discussion. Those principles are as follows:

  1. Act in the best interests of the client;
  2. Avoid or control conflicts of interest in a manner that prioritizes the client’s best interest;
  3. Provide full, clear, meaningful and timely disclosure;
  4. Interpret law and agreements with clients in a manner favourable to the client’s interest where reasonably conflicting interpretations arise;
  5. Act with care.

According to the CSA, “a regulatory best interest standard would require that a registered dealer or registered adviser shall deal fairly, honestly and in good faith with its clients and act in its clients’ best interests, and that a representative of a registered dealer or registered adviser shall deal fairly, honestly and in good faith with his or her clients and act in his or her clients’ best interests. The conduct expected of a registrant in meeting her, his or its standard of care would be that of a prudent and unbiased firm or representative (as applicable), acting reasonably.”6

Additionally, the FPSC has a Standards of Professional Responsibility and Code of Ethics that includes a set of principles that serve as the foundation of the code of conduct, similar to the CSA. The very first principle listed is a “client first” standard that a Certified Financial Planner should always place the client’s interests first, that requires the professional to act honestly, and place the client’s interest ahead of their own.7 This would be another set of principles that would be worthwhile consulting when determining a position on the “best interest duty” for the consumer.

The credit union structure is unique in that being member-centric is fundamental to who we are as financial institutions. Each and every director, committee member, officer, or employee of a credit union has an obligation under the Act to conduct the affairs of the credit union in the best interests of its members. Specifically, directors, committee members, officers and employees must “discharge the duties of his or her office honestly, in good faith and in the best interests of the credit union.”8 In addition to a duty of care, the Act lays out a Standard of Care where a “degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances” should always be enacted.9 In addition to our statutory requirements under the Act and associated regulations, credit unions recognize that our members are necessary for our business to succeed. As such, placing our members first is our number one priority.

4. Referral Arrangements

The recommendations by the Expert Committee regarding referral arrangements is not clear. As you may know, in July 2013, the Client Relationship Model – Phase 2 (CRM2) through the CSA came into effect with a 3-year phase in.10 This model has included in it a section on referral fees and disclosing those fees. The Investment Industry Regulatory Organization of Canada (IIROC), Mutual Fund Dealers Association of Canada (MFDA) made it so that their member rules will be materially harmonized with the CSA’s CRM2 requirements and will be implemented on the same schedule.11

While credit unions are supportive of the Expert Committee’s intention to increase the standards around referral fees and the transparency to the client, it is recommended that the CRM2 model be evaluated as a potential solution. A common theme is that there has been a duplication of standards and efforts by multiple regulatory bodies. Rather than reinventing a new way to deal with referral arrangements, “piggybacking” on existing efforts is recommended.

5. Titles and Holding Out

Consumers could be easily misled with the interchangeable use of “financial planner, “financial advisor” and/or other titles.

As previously stated, Ontario credit union’s are supportive of the recommendation to have prescribed rules around the use of titles by individuals and firms engaged in the provision of financial product sales and advice and/or financial planning. The dozens of permutations of financial planning titles that currently exist also leads the consumer to believe they are dealing with a qualified individual when, that may not be the case. All of these titles may or may not be providing the same service, but in the eyes of the consumer, there is no way to know for certain. We also see the standardization of certifications across the board as a way of ensuring that consumers are getting services from qualified professionals who are accountable for the decisions that they make.

Consistency and the notion of implementing the plain language title of “Financial Planner” for all licensed individuals makes good sense. In doing so, a consumer will understand that when meeting with a “Financial Planner” that these are professionals that have demonstrated proficiency and fulfillment of the standardized requirements as well as a level of answerability as they are subject to oversight by their expert peers. Standardization will greatly help to reduce customer confusion when seeking financial advice.

6. Central Registry

Building on the recommendations above of regulation, harmonization and a standardization of titles and holding out, credit unions applaud the direction of the Expert Committee to create a comprehensive, centralized registry for consumers that acts as a one-stop source of information. The recommendation made by the Expert Committee would be an effective way to keep consumers informed about Financial Planning professionals disciplinary history, as well as their credentials.

It should be noted that Ontarians already have access to a central registry for those certified by the Financial Planning Standards Council.

We would respectfully request more guidance from the Expert Committee as to how a centralized registry would be created, maintained, monitored and scale to a national level. We recommend that government partner with the national certification body, the FPSC, to work on creating and maintaining the registry.

Furthermore, the Canadian Securities Administrators (CSA) also has an enforcement tab on its website that has a disciplined list as well as an investor alerts board that lists the persons or companies who appear to be engaging in securities activities that may pose a risk to investors.12 The CSA’s current design may be a valuable tool to assist in developing a central registry for financial planners.

7. Financial Literacy and Investor Education

The Credit Unions of Ontario are very supportive of the Committee’s recommendation for financial literacy and investor education to be supported and encouraged by government, regulators, public and private schools, non- profit organizations and the financial services sector.

Credit unions have focused heavily on financial literacy and education for our members as it is a necessary aspect of providing financial services. There is a system-wide commitment to continuing financial literacy efforts and enhancing them to couple with future and existing financial planning initiatives in order to foster sustainable financial decision-making for our members’ futures. Many Ontario credit unions offer financial literacy programs. Some of those programs are highlighted below.

FirstOntario Credit Union has created a number of financial education programs such as MoneyOnTrees.ca, a blog directed towards young adults to help answer common financial questions and highlight key topics such as: spending, life milestones, saving for school, etc.13 Similarly, Meridian Credit Union has “increasing financial literacy” as one of its 5 key commitments to the communities they operate it. Libro Credit Union has created a hub called “Money School” that provides education on mortgages, budgeting, investing, and other key areas of personal finance.14 Additionally, Libro has coaches available that are committed to assisting members in understanding their finances and fulfilling their financial goals. PenFinancial Credit Union offers Financial Literacy On-site Workshops to a number of different organizations across Niagara ranging from employer groups to non- profits. The workshops cover a wide range of topics including budgeting, RRSPs, TFSAs, Investing 101, Mortgages, RESPs, How to Reduce Debt, Good Credit/Bad Credit, just to name a few15. They are also active in promoting financial literacy for students through their Sprout.ca Financial Literact Program which aims to educate and inform youth from the Niagara area on matters related to money management in a fun and engaging way16.

The above examples are just a few of the financial literacy programs being offered at our 75 member credit unions in Ontario. Literacy and education are cornerstones of the services we provide as being member-focused and community oriented financial institutions.

Issues for Further Consideration

Simplified Complaint and Restitution Mechanisms for Consumers

The Financial Planning Standards Council currently has a complaints process that is easy to file for consumers.17 The complaint form explains to the filer the exact steps and timeline of the complaints process. It is recommended that this process remain as the de facto standard moving forward. The Ministry of Government and Consumer Services could take a leadership role in posting for consumers the link for filing a complaint with the FPSC.

Conclusion

I would like to thank the Expert Committee for your diligent work to date and for your consideration of the views of the Ontario credit union system in developing your final recommendations for the future of financial planning regulation. We hope that our comments will be helpful in reassessing some of the initial remarks made in the consultation paper. Please do not hesitate to contact me if you have any questions.

Sincerely,

Megan McIver
Regional Director
Central 1 Credit Union

 

 

1 Financial Planning Standards Council. “About the CFP Designation.” http://www.fpsc.ca/about-cfp-mark.

2 Financial Planning Standards Board, “About Us”, https://www.fpsb.org/about/.

3 The College of Physicians and Surgeons of Ontario, “About the College”, http://www.cpso.on.ca/About­Us.

4 Law Society of Upper Canada, “About the Law Society”, https://www.lsuc.on.ca/with.aspx?id=905.

5 Canadian Securities Administrators (April 2016), Canadian Securities Administrators Consultation Paper 33-404: Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients, pg. 19, http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20160428_33-404_proposals­enhance-obligations-advisers-dealers-representatives.htm.

6 Canadian Securities Administrators (April 2016), Canadian Securities Administrators Consultation Paper 33‐404: Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients, pg. 19,
http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20160428_33­404_proposals-enhance­obligations­advisers­dealers-representatives.htm.

7 Financial Planning Standards Council, Standards of Professional Responsibility, pg. 3,
https://issuu.com/fpsc/docs/standards_of_professional_responsib/1.

8 Section 144, Credit Unions and Caisses Populaires Act (CUCPA).

9 Section 145, CUCPA.

10 Ontario Securities Commission (February 2014), CSA Staff Notice 31-337 Cost Disclosure, Performance Reporting and
Client Statements - Frequently Asked Questions and Additional Guidance,
http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20140227_31-337_faqs-guidance-31-103_2.htm.

11 Ontario Securities Commission, Cost disclosure, performance reporting and client statements,
http://www.osc.gov.on.ca/en/Dealers_crm2­faq-planning-tips.htm.

12 Canadian Securities Administrators, Enforcement, http://www.csa-acvm.ca/enforcement.aspx?id=73.

13 FirstOntario Credit Union. MoneyOnTrees, http://moneyontrees.ca/about/.

14 Libro Credit Union, “Money School,” https://www.libro.ca/Learn/Tools/MoneySchool.aspx.

15 PenFinancial On-site Workshops
https://www.penfinancial.com/Personal/OurCommunity/FinancialLiteracy/OnsiteWorkshops/

16 PenFinancial For Students
https://www.penfinancial.com/Personal/OurCommunity/FinancialLiteracy/ForStudents/

17 Financial Planners Standards Council, Complaint Form, http://www.fpsc.ca/docs/default-source/FPSC/standards­and­enforcement/fpsc­complaint­form.pdf.