: James Clark - Submission

Financial Advisory and Financial Planning Policy Alternatives

Comments on the Preliminary Policy Recommendations Of the Ontario Expert Committee Introduction

These comments are being provided by James Clark to assist the Expert Committee in preparing its final policy recommendations.  In providing these comments, I would note the following:

  • James Clark has over 25 years of experience in the institutional investment management business in Canada – a full profile is provided at the end of this paper;
  • I do not provide financial planning or advice services – I have no vested self-interest in this issue;
  • I am a consumer of financial planning and advice services;
  • I believe that any recommendations must lead to a system that is clear, transparent and easy for the consumer to understand – regardless of the efforts being made by many people, the average level of financial literacy in Canada is, and will remain, low for many years.

Prior to attending the June 2 session in Toronto, I read the preliminary recommendations and was broadly in agreement with them.  Having attended this session, my views on a number of issues have changed.  Why? – because I saw an underlying theme of self-interest from many of the speakers and because I saw a system emerging that would not be clear, transparent and easy to understand for the average consumer.

Before providing specific comments, I do note that three of the four members of the Expert Committee are lawyers by training and I am sure that many of my thoughts will miss the finer legal points that were being raised – but I would argue that these finer points will also be missed by the average consumer. 

Again, it is critical that the recommendations propose a system that is easy to understand.

Specific Commentary – My observations are provided in Italics.

  1. Regulation of Financial Planning in Ontario
    1. Regulation required – Agree. I am not sure, however, if regulation requires much government involvement.  For example, lawyers, doctors and accountants have self-regulatory organizations that seem to work fine.
    2. Separate regulation by other entities. - I do not agree that there should be this kind of exemption.  I believe that this is part of the problem that we currently have.  I do not believe that Accountants, Lawyers, Insurance and Mortgage Brokers should have the own sub-category irfor Financial Planning and Advice.
    3. All other under the proposed FSRA. - I do not agree with this recommendation.  As noted above, I believe the system would work fine with a recognized SRO and one title.  For example, (and this seemed the general flow of discussion at the June 2 meeting) one could settle on the use of the title ‘Certified Financial Planner’ and place all control in the hands of the Financial Planning Standards Council.  I would argue this is essentially what has happened with the merger of the accounting professions under the single brand of CPA Canada – it provides clarity and ease of understanding for the consumer.
  1. Harmonization of Standards. - If one SRO and one designation is settled upon, there will be harmonization.
  2. Statutory Best Interest Duty. - I readily admit that I learned something at the June 2 session – the difference between SBID and Fiduciary Duty – one is in statute and the other is in common law.  What I am not sure that I understand, however, is why one is better than the other.  Having worked in the institutional industry for 25 years, I believe that I have a clear understand of my fiduciary duty and I believe that it has served my clients well.  I would just impose the familiar ‘fiduciary duty’ on those providing financial planning or advice.  (I have also long argued that all investment advisors should be have a fiduciary duty to their clients.)
  3. Exemptions to SBID - Other than mere ‘order takers’, I do not believe that there should be any exceptions to SBID or fiduciary duty when a person is providing financial planning services or advice.  If you allow different standards, it will just confuse the consumer and it offers a place for the ‘bad’ planner to hide and obfuscate.
    1. Anyone already covered by registration. - Disagree with this exception.
    2. Anyone subject to professional legal standard of care. - Disagree with this exception.
    3. Anyone who is a mere ‘order taker’ – discount brokers. - Agree.
  4. Referral arrangements - The recommendations have chosen to address one area of the fee issue. I do not understand the logic that supports just addressing the issue of referral fees.  I do, however, appreciate that the Expert Committee did not want to get mired in the issue of fees and compensation – but I would argue that it is central to the challenges of providing financial planning and advice, especially to consumers with limited financial resources.  Under the current structure, I would surmise financial planning is generally provided as a means to attract clients in the door for product sales (and I am not referring to private wealth managers and others who charge the client an explicit fee for service).  If the client had to pay for the planning separately, they could not afford it – just look at the rise of the robo-advisor.  So the cost of planning is generally ‘funded’ by the commissions and fees associated with the sale of products. 

    For a solution – I would suggest a recommendation that requires a financial planner to disclose the source of ALL fees received from the clients AND from referrals and products sales. (I am guessing that this is akin to CRM 2). 
  5. Titles and Holding Out
    1. Approved list of titles. - As said at the outset, I would suggest there be only one title/designation and that it be Certified Financial Planner.  (This would be akin to the CPA designation for accountants, LL B for lawyers, and CFA for a CFA Charterholder) To offer a range of titles will just confuse consumers who are buying basically the same service.
    2. Financial Planner is circumscribed by Rec’s 1 and 2 - Subject to the comment under a) above, I agree.
    3. Certain other identifiers are not permitted. - In general, I agree.  I could phrase it differently and I would not have the regulator approve titles. In terms of different phrasing, I would say that the CFP designation can only be used with other academic and/or professional qualifications in such a way as to NOT confuse the consumer.  So CFP could be used with a MBA, CPA or CFA designation but not with some other financial planning related designation from the US, for example.
    4. Titles cannot confuse consumers. Certainly agree.
  6. Central Registry - I agree that there should be a central registry but, as doctors and accountants have found (and as was mentioned in the June 2 session), care must be taken as to what is disclosed in such a registry, especially under the heading of disciplinary history, if past complaints are found to be ‘unfounded’.  I believe that this could be controlled by the FPSC without the need for a new structure.
  7. Financial Literacy and Investor Education – While I cannot disagree with this recommendation, it seems to be outside the scope of the committee’s mandate and it is a self-evident need.
  8. Issues for Further Consideration - The emphasis in each of the issues is the need for ‘simplicity’ and consumer-friendliness’.    While I agree with the concept, I would surmise that all complaint resolution systems aim for simplicity and that most fail because of the conflict between the complainant and the reputation of the person being complained against – not to mention the needed involvement of the legal profession.  While laudable, I am not sure how these goals can be achieved.
    1. Simple complaint mechanism – This could work most efficiently by having a single SRO and a single recognized designation, ‘CFP’.
    2. Simplified approach to regulatory offences – With an SRO, most of this would become moot, would it not?
    3. Consumer friendly process to recover losses – Laudable but how could it work?

Closing Observations

As I said at the June 2 session, one of the key goals must be the consumer-focus.  It is critical to ‘keep it simple’ if the average consumer is going to understand what they are being offered when seeking financial planning services and financial advice.  One of the committee members noted that a Core Principle, in fact the first one, includes Consumer Focus.

I would humbly suggest, however, that, while the recommendations may have a consumer focus, they are certainly not easy for the average consumer to understand. 

Needless to say, I would be happy to provide additional input if my observations need more clarification.

About Dunhelm Consulting Inc. - James Clark, CPA, CA, CFA, President

James has over 35 years of general business experience and he provides independent and expert advice to his clients.  For the last 25 years, he has focused on the investment and management of Canadian institutional and High Net Worth assets. In addition, he has 10 years working as a Chartered Accountant in Canada and the UK.  He is well known and respected for his pension and investment knowledge and integrity.

Key strengths include:

  • 360° Perspective – Experience on all sides of the investment industry giving him a unique perspective.  He has managed major Canadian pension and endowment funds; he has consulted to pension and other institutional investors; and he has sold investment solutions in the institutional and HNW channels.
  • Excellent Knowledge – Broad and deep understanding of the pension and institutional investment market.  He has been responsible for committee management, asset allocation policy, manager search, selection and monitoring, and he has 25 years of practical experience with investment committees, presentations and communications.
  • Recognized Communication Skills – Excellent reputation as a clear and direct communicator.  He is known as a highly-capable committee chair and compelling public speaker, and he establishes an easy rapport in face-to-face meetings.
James has been a Chartered Financial Analyst Charterholder since 1993. In addition, he is qualified as a Chartered Accountant in Canada and he is a Fellow of the Institute of Chartered Accountants in England and Wales.  He served on the Board of Governors of a major Ontario-based educational institution for 9 years. He is a frequent writer on investment and pension related subjects and has presented at numerous conferences over the past 20 years.