: John J. De Goey - Submission

May 16, 2016

From: John J. De Goey, CIM, CFP, FELLOW OF FPSC
To: Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives

Subject: Comments on the Interim Report

Let me begin by stating that what follows are my personal opinions and that those opinions have been neither censored nor endorsed by my employer – iA Securities. While I work with iA Securities, I am deliberately submitting my thoughts on plain (non-letterhead) paper in order to underscore this distinction.

By way of background, I have been a financial advisor since September of 1993 and a Certified Financial Planner (CFP) since 1996. I have been active in the advisory community for most of those years and am perhaps best known for having written a book that chronicles the (too slow, in my opinion) journey toward professional status for financial advisors. The book –The Professional Financial Advisor - was first released in 2003 and later this year, I will be releasing a fourth edition – The Professional Financial Advisor IV.

I remain delighted that the Ontario Government is exploring taking a more tailored approach to regulating financial planning and want to encourage the government’s efforts to press forward with strong, purposeful legislation that protects consumer interests above all others. As I wrote in my initial comments, my view is that cutting too broad a path would be dilutive. Instead, I believe a higher standard for financial planning in particular is the preferable route. As such, I’d now like to turn my attention to the eight specific recommendations that the Expert Committee has put forward. My comments to each recommendation are what appear below.

  1. Regulate Financial Planning Financial Planning is a set of activities (whether performed on a modular basis or in an all-encompassing holistic basis) is the application of applied knowledge that follows a clearly-defined six-step process. These activities include: tax planning, estate planning, cash flow planning (budgeting) and investment planning. I strongly agree that this body of knowledge needs to be properly regulated.

    With that said, I do not believe that the disparate companies and organizations that currently provide oversight are even remotely qualified to do so. To begin, most companies have no express expertise in the field. Both my previous firm, Burgeonvest Bick Securities Limited and my current firm, Industrial Alliance Securities, Inc. have expressly told IIROC that they do NOT hold out as financial planning firms. Given them the authority to provide oversight regarding financial planning activities and deliverables would be leaving the proverbial foxes in charge of the henhouse, since they would – by their own admission! – be unable to properly discern proper planning from improper planning. Are different firms or SROs allowed to set different assumptions? If so, who ensures consistency and reasonableness?

    A second problem is that multiple jurisdiction (e.g. IIROC and MFDA) could allow for the financial planning equivalent of regulatory arbitrage, whereby advisors gravitate toward the most accommodating provider of oversight – which is usually not the best provider of oversight. Furthermore, the committee proposes the establishment of a new regulator – the FSRA – to regulate those planners that do not hold a licence to sell investment products.

    This bifurcated approach would almost certainly create a sizable disparity between those organizations providing a regulatory function. My view is that there needs to be one central, strong, competent body to provide consistent oversight for all planners. My vote would be to give that authority to the Financial Planning Standards Council (FPSC).

    In my opinion, this should be set up in a manner that is akin to regulated health professions, with an independent body such as FPSC where the mandate is to oversee members of the profession in a manner that is not conflicted with advocacy on behalf of membership. I further believe the new regulations should apply only to the nearly 9,000 CFPs currently practicing in Ontario. In Canada (Ontario), advisors are currently regulated based on what they sell rather than on what they do. This needlessly and confusingly compartmentalizes advisors and tends to funnel the advice they give along product-specific lines – regardless of whether that serves, or harms investors' best interests.
  2. Harmonize Standards I agree in principle, but disagree regarding the delivery recommended. To my mind, having multiple de facto regulators is the surest way to end up with divergent standards. If you really want one standard, then the surest way to get it is to have one body (and only one body) enforcing a clear and consistent standard for everyone. The general public would be at risk with the current proposal as written because there would be multiple organizations enforcing the same rules differently. The outcome I envision is just common sense. Think of the game ‘telephone’. No matter how diligently you try to gain uniformity, there is bound to be some degree of latitude that is lost in the translation/ enforcement of the rules.

    We need to harmonize standards because today there are essentially no rules that govern who can and cannot call themselves a financial planner. That, co-incidentally, is a big part of the problem and the confusion. Imagine if we were talking about doctors or lawyers (both are professionals governed by provincial statute). The regulatory regime for those more established professions is stronger, in part, because Ontarians are clear on who can call themselves a doctor or a lawyer and also on what they should reasonably expect if they were to retain the services of a doctor or a lawyer. The same is obviously not true for financial planners.
  3. Establish a Statutory Best Interests Duty (SBID) I firmly agree that, to the greatest extent possible under the law (i.e. taking into account over a century of precedent), all financial planners should be held to a fiduciary-like (best interests of the client) standard. If that is not possible due to case law precedent regarding the word “fiduciary” and how it is interpreted, then at a minimum, some enforceable form of a SBID should be enacted.

    As both a CFP and an IIROC registrant, I attempted to self-select being held to a fiduciary standard – i.e. to be held to a higher standard voluntarily - but I was precluded from doing so by my previous employer. I spoke with other firms and they would have done the same thing, so the experience I had was by no means unique to my employer. All true professionals (again, think of doctors and lawyers) are fiduciaries. Once again, I feel compelled to make a ‘functions and relations’ distinction here. I believe that all qualified planners (CFPs) should be held to a SBID regarding their planning activity – irrespective of whether they are licenced to sell products or not and irrespective of whether that licensure were to carry a similar obligation down the road or not. All reasonable steps should be taken to rid the industry of advice being given with evident bias.
  4. Exemptions to SBID I believe these should be few and far between, but if, as with section 1 of the Canadian Charter of Rights and Freedoms as set out in the Constitution Act of 1982, there are ‘reasonable limits prescribed by law’ where this might be advisable, I will not quarrel with the insertion of provisions to that effect. Nonetheless, matters of consumer protection should be paramount – as in every other profession.
  5. Referral Arrangements I have no strong opinions on this matter, as I have never entered into a formal referral arrangement in my career. As such, I will defer to those who have more experience in this matter to offer their thoughts.
  6. Titles and Holding Out I have been absolutely clear in my submissions to date. Only Certified Financial Planners (CFPs) should be allowed to hold out as financial planners to the public. The CFP mark is by far the largest, most respected and most internationally-recognized designation in financial planning.

    By way of illustration, I was once one of an “elite” (~400) group of planners who held the R.F.P. (Registered Financial Planner) distinction. The designation still exists (the organization that confers it is called the I.A.F.P.), but absolutely no one outside Canada (and virtually no one inside of Canada) has any idea of what the designation is and how it differentiates itself form the CFP mark. I gave up my R.F.P. (nearly a generation ago!) because I believe in the primacy of consumer interests. Having an ‘alphabet soup’ of competing (usually lesser) designations does far more harm than good. I personally volunteered to surrender one of the more robust financial planning designations in Canada because I was determined to be “part of the solution”. Allowing those with lesser designations to hold out as planners would merely exacerbate the problem.
  7. Central Registry I do not see this as being a major benefit, but neither do I see it as doing any harm, either. A central registry of qualified and sanctioned planners is better than nothing, but my sense is that the very large majority of Ontarians would never consult it, anyway. Nonetheless, some would and, to the extent that working with charlatans can be avoided, I support the initiative.
  8. Increase Financial Literacy In what surely must be the most motherhood of all recommendations, I would be absolutely shocked if anyone were to comment against this recommendation. Of course, increased financial literacy is a good thing.

Once again, I want to thank you for undertaking this important and long-overdue initiative. If there is anything in my submission that is unclear or if there is any comment where more detail would be beneficial to the committee, please do not hesitate to ask me. I wish you the best of success and look forward to reading the final report when it is released.

Sincerely,


John J. De Goey
B 416.216.6588 R 416.255.9302 john.degoey@iagto.ca