: Knowledge Bureau - Submission

Comments on the Preliminary Recommendations by the Expert Committee on
FINANCIAL ADVISORY AND FINANCIAL PLANNING POLICY ALTERNATIVES

Submitted by Evelyn Jacks, President
Knowledge Bureau

National Head Office:  187 St. Mary’s Road
Winnipeg, Manitoba, Canada R2H 1J2
1-866-953-4769 Direct:  1-204-953-4764
Email:  evelyn@knowledgebureau.com  Assistant:  barbara@knowledgebureau.com

Written notes to follow up on the Public Consultation,

Delta Ottawa City Centre
101 Lyon Street North, Ottawa, Ontario
Room: The Pinnacle

May 12, 2016 from 1:00 p.m. to 3:00 p.m.

Dear Expert Committee Members:

On behalf of Knowledge Bureau, I would like to thank you sincerely for this invitation to continue to deliberate with you on this important initiative and commend you on the careful thought you have already put into the preliminary policy recommendations to consider financial advisory and financial planning policy alternatives. We submit our recommendations with humility, as we appreciate how difficult and far-reaching your task is.

Knowledge Bureau has been pleased to participate in the process, providing a written submission in September 2015 and a presentation to the committee in Ottawa in May 2016, in response to the preliminary policy recommendations.  The comments below reflect a written embellishment on that presentation.  

EXECUTIVE SUMMARY

Overall, the concept of an “integrated regulator of financial planning services and financial product sales and advice” will require focused effort on the harmonization of regulation, standards, proficiencies, and titles in order to be understood by all stakeholders to the ultimate results. This provides for two important goal posts:  the simplicity of compliance and the equity and fairness the regulation brings to both the advisor and the consumer of various financial services. 

However, at this juncture, what is required, in our view, is a well-defined and universally understood framework for financial planning as a discrete activity by a professional financial planner whose work results in measurable and accountable outputs that are prescriptive for product sales and advice. 

We would like to provide for your consideration one overriding recommendation and two specific ones: 

1. Overriding Recommendation.  The various definitions specific to the framework for regulated Financial Product Sales and Advice and/or Financial Planning, all of which may be uniquely distinct activities performed in different roles by various stakeholders, require more work in our view. Specifically:

  • The Regulation of the Profession of Financial Planning, which may incorporate prescriptive advice on product suitability to the plan, requires a broader standard specific to duty and results which overrides all activities and therefore begins with a clear definition of the regulatory framework to be applied to the role of Financial Planner.
  • The definition of Financial Planning needs to be linked to role of Financial Planner, which is not defined in Appendix A.  In our view this needs to be more clearly articulated and separated from the definition of Financial Product Sales and Advice.  From a financial literacy point of view, the two definitions are not easily understood in their current form and should be vetted by a financial literacy expert to clearly separate the profession of financial planning from the activity of financial product sales and advice. 
  • While the definition of Financial Planning does not make reference to the activity of Financial Product Sales and Advice, the definition of “Holding Out” and Titles appears to include both definitions.   It would be helpful to define, the specific Regulated Activities to which approved titles, standards, principles and proficiencies will be attached to the term “Financial Planner”, as distinct from the regulated activities of others involved with product sales.
  • Regarding harmonization, the existing regulatory framework is already very complex.  It would be good to understand in your recommendations the overriding plan for regulatory harmonization and how it will advance the ideals of good regulation:  simplicity, fairness, and equity that is understood by advisors and clients alike?

By carefully identifying Generally Accepted Standards and Principles in Financial Planning, that are linked to standard professional outputs  to be regulated (the “what”)  will be more easily linked to standards of care and proficiencies required by the qualified financial planner (the “who”). 

To address the first issue, a better articulation of the consequences of non-compliance, including  errors in planning procedures, errors of omission or follow up, are required.  Once these definitions are refined and expanded, it will be easier to establish and maintain underlying professional proficiencies required by financial planners, and link cure periods, penalty provisions and a framework for assessing damages.

To the second issue, the Expert Committee has observed that the number of individuals and firms providing stand-alone Financial Planning services is currently too small to warrant the costs associated with a new regulatory body.   We agree, but think that this group of people, who are often important specialists adjacent to the general financial planning activities may grow in the industry.  There is no need for these practitioners to comply with other regulators or with an integrated regulator. 

Understanding your plan for integrating these providers would be appreciated; together with an expanded exemption list that would enable other professionals or specialists from adjacent industries to carry on their work supporting Financial Planners as required, but without additional or unnecessary oversight.

2. Specific Definitions.  We are concerned that in the absence of the requirement for a strategy with timelines and a formal financial plan in your definition of Financial Planning, it will be difficult to regulate non-compliance, without an expensive legal process fraught with grey areas.

3. Educational Proficiencies, Titles and Standards.  The attainment of a particular designation in any professional field is an important minimum standard; however we believe that is not enough.  It is in the academic path to continuing professional development that excellence in providing financial services can be achieved.  We assume this may be part of the proficiency framework you envision, but this is not clear in your preliminary recommendations.

This academic path to continuing professional development leading to specialization has been mission of Knowledge Bureau in working with advisors from multiple disciplines since 2003. In that time it has been our honor to award certificates, diplomas and specialist designation to thousands of practicing advisors.  We would like to offer our expertise to help the committee to round out proficiency requirements for ongoing specialization in the industry relating to post-graduate proficiencies.  In that regard, we hope that the Expert Committee will recommend a culture of inclusivity in establishing a framework for the continuing evolution of educational standards.

To the issue of standards of care:  as activities related to planning, prescription and product selection can be provided by the same person, we agree that a Statutory Best Interest Duty can help to discourage conflicts of interest.  But financial planning done well has implications for multiple family stakeholders over long periods of time.  Therefore best interest duties must bear this in mind; it likely requires a different set of standards and principles to which the professional financial planner must be held, compared to singular product transactions for individuals, amounting to order-taking.

A precise definition of this duty and its applications across the industry must be achieved in a common thread between all the stakeholders involved, and ultimately enforced universally with equity, fairness, and optimally, self-assessment and compliance.  Again, this is a difficult task, and the definition of scope and timelines in which outcomes are to be judged would be helpful.
Ultimately, the benefit of additional integrated regulation is to empower both the advisor and the consumer of financial planning services.  But the regulatory framework must be able to evolve to meet the rapid changes in the economy and the financial services.  
Further, the burden of regulation must not be so great that the professionals cannot do their jobs and/or leave the industry because of it, or that one of the results is increasing costs in an already expensive market. 

SPECIFIC RECOMMENDATION 1:  CLARIFICATION OF DEFINITIONS    

Questions to be answered by the definitions included in the recommendations:

  • What does a fully compliant financial planning services landscape look like?
  • What is a financial plan – formal or informal – or the terms of reference for financial planning that is onside/offside with regulators?
  • What is the term of the plan to which regulatory oversight applies?
  • What are the professional roles required to execute on the plan?
  • What are the proficiencies required to act in the various roles required to execute on the plan?
  • What outcomes are measurable and accountable?
  • What activities fall outside the rules?
  • What are the consequences when a series of activities, performed by multiple stakeholders, lead to offensive results?
  • How are damages/consequences determined?  (The dilemma is well noted on page 10 – the complaint process, and ultimately the regulatory policy must be simple, fair, and equitable in order for compliance to be successful).

Specifically, for your consideration the following definitions are missing or require clarification:

Financial Planning Profession:  The Harmonized Framework for Planning and Advice.

  1. What does a healthy and compliant financial eco-system look like related to financial planning the related financial product sales? 
  2. In the absence of a requirement for either a strategy or a formal financial plan, how can advisors be sure when they are operating outside regulatory requirements? 
  3. As financial planning and advice has long term consequences, what are the timelines under which the advisor is bound to regulatory oversight?

Financial Planning Standards and Principles: 

  1. Standards:  Defining the Standards and Principles of Professional Financial Planning.
  2. Proficiencies:  Defining roles and collaborative responsibilities.  
    1. What are the roles, hierarchies and required proficiencies of the various stakeholders across the participating industries who engage in the successful financial planning outcome? 
    2. What is the harmonized proficiency framework for collaboration between financial planners, external specialists and product sales people?   
  3. What is punishable? 
    1. What are the key offences this regulation will correct? 
    2. What guidelines for prevention and cure will accompany the regulation? 
    3. How will punishments be uniformly enforced?
    4. Is there a burden of proof, and what is it, under the exemptions cited? 
    5. What other roles in adjacent industries will be implicated by wrongdoing?
    6. How will damages be determined?
    7. How will all of this affect the costs of supply financial planning/advice services?

Ultimately, a court of law or regulatory tribunal will have to decide whether there has been wrong-doing in financial planning and the giving of advice, what impact bad planning and advice has had on financial security over time, and what the damages awarded should be, against rules and guidelines that are transparent and reasonable across a broad spectrum of activities in the financial services marketplace.

Generally accepted principles for the development and execution of financial plans for individuals and for family wealth management would help to ensure client objectives are identified and met with appropriate solutions, revisited periodically in relation to tax and economic changes in a multi-faceted marketplace. What’s accountable, in the end, are the improvements in personal and family net worth over time. 

Financial Advice.  As differentiated from Financial Planning – is this fact-based or opinion-based and what is the difference between the two, especially in relation to required proficiencies and regulated responsibilities? 

Further, the terms “financial planning” and the word “advice” appear under Statutory Best Interest Duty as it relates to consumer expectations.  It may be helpful to define each more definitively from this context. 

Financial Plan.  There is no definition of a financial plan or financial planning framework.  This makes it difficult to define roles, articulate what outcomes are to be regulated and what proficiencies are required to develop educational standards and any “Holding Out” guidelines for qualifications.  Further:

  • As there are no requirements for a “formal financial plan” in the definition of financial planning, will there be guidelines that help advisors/planners understand the limitations of their regulated obligations?  How will “informal” advice, if offside, be identified and regulated?
  • Are the activities related to review and analysis required to be holistic; that is, encompassing planning and advice around multiple financial and non-financial assets including businesses and personal property for multiple generations?

Financial Planning. 

  • Strategy, scope and timeline.  This definition appears to describe a process and a series of activities, but in the absence of the establishment of a definitive strategy that multiple stakeholders can follow to get consistent, measurable, long term results.  Will each individual activity be regulated, or is it the results over time that will be reviewed?  If so what is the timeline?
  • Client Stakeholders. The definition of financial planning appears to apply to personal circumstances of an individual.
    • This makes multi-generation financial planning difficult, especially for tax, retirement and estate planning purposes.  Is the provider of services and advice accountable to one individual or many under regulation? 
    • For those who do not sell Financial Products, the measurable and accountable activities that require regulatory oversight are not defined.  For those who sell products, and provide planning and advice, how much “financial planning” is required and when is the product provider considered to be “offside”?
  • Financial Planning Services.  This term appears in the introductory comments, in Recommendation #1 and throughout the document, but it has no specific definitions.  By its very nature it could include a multiplicity of activities that require deep and specialized knowledge across a variety of life events including education, career planning, debt management, disability, personal, corporate and trust taxation, investment management, financial consequences of family formation and break-up, several phases of retirement, succession planning, estate planning, personal and corporate risk management and the planning for owner-managers of a business or profession.  Clarification is required on how regulation will intersect with all of those disciplines.
  • Financial Product Sales and Advice:  Some thoughts for your consideration: 
    • What is the definition of advice?  Terms requiring further guidelines in relation to the regulated activities:  interaction, opinion, suggestion, recommendation, investment advice (all synonymous with advice); general financial management (as opposed to detailed financial management); financial affairs (do they include tax affairs or other financial activities adjacent to outcomes in budgeting, investment, retirement and estate planning).
    • Individual, business, estates.  The process described appears to be consumer focused, but will regulated activities also encompass activities surrounding family businesses and their small business corporations and/or trusts?
    • Definition of product. How will financial planning relating to exempt and non-financial products be handled in the regulation of a financial planning activity?  How will “order-takers” be trained not to give recommendations or advice?  How do products recommended by “robo-advisors” intersect with this regulation? 
  • Holding Out:  This definition and recommendation #6 require more work against the development of an overriding framework for the provision of financial planning services and advice, separate from product sales, together with the pre-defined competency requirements for various professional roles who operate within the hierarchy of services available.  Education, training, credentialing and licensing stems best from there, allowing consumers to identify the right advisor to help them meet financial goals.
    • What is the definition of “described services or otherwise” in recommendation #1 and should it be cross-referenced in this definition? 
    • Holding out by “explicitly or implicitly by title or “action” would benefit from a definition and description
    • In harmonizing standards for education, training, credentialing and licensing, we believe it is important to separate product expertise from financial planning and advice-giving.
    • We would like to recommend that the collaborative process initiated in developing a “circumscribed list of approved titles” be inclusive, rather than exclusive, and provide for an opportunity for the industry to evolve beyond its current slate of designations.  In a world in which specialization is required to address complexity, this evolution of guidelines around future proficiencies can be instrumental in developing a vibrant industry framework for excellence. 
    • Regarding continuing professional development, which is not addressed in this paper, it is as important to provide an academic path to ongoing professional excellence; as opposed to a random requirement for CE credits. 
    • In approving individual designations, qualifications and credentials, approved accreditors, should not be in competition with those they accredit.
    • Academic paths to specialization should not be included in general regulatory oversight, our view.

Finally, if the FSRA be regulating activities that are adjacent to financial planning services, specifically “outside the current regulatory framework” as per Recommendation #1 c, specifically what activities are you referring to?  See further comments in our Specific Recommendation #2 below.

Regulators:   A “multi-stakeholder” approach to the regulation of Financial Product Sales and Advice and the profession of Financial Planning, will require the definition of

  • Harmonization of accountabilities, standards against a national framework for services
  • Harmonization of evaluation guidelines, penalties, appeals, etc.
  • Harmonization of punishment and penalties for wrongdoing
  • Mutual agreement on how this will be communicated to the public and to advisors in terms they can understand and rules they can reasonably execute on.

Statutory Best Interest Duty:  is the footnote on page 6 the final definition? 

Conflict.  It is possible that the word “impartiality” may require a definition and guidelines in a variety of situations specific to roles – from product sales, to planning to advice-giving.

SPECIFIC RECOMMENDATION #2    STANDARDS, TITLES AND PROFICIENCIES

We strongly recommend that the Expert Committee take the time to deliberate carefully on educational standards and guidelines against an agreed upon national framework for the delivery of financial planning services and advice, separate from product sales licensing requirements.   In regulating standards and the educational requirements to meet them, a diverse board of curriculum developers must be a part of the oversight.

Standards, titles and proficiencies should be reflective of that framework and allowed to evolve as Canada’s economic future, tax and banking laws evolve over time.

Professional need the qualifications to deliver on a strategic plan as well as execution on specific tactics required to meet the plan’s objectives and oversight on the correct matching of product solutions.  As discussed, this is particularly so because the profession of financial planning, as opposed to solutions specific to individual product sales, may involve multiple stakeholders to a plan.  Broad and deep knowledge about multiple technical disciplines is required, to meet consumer needs for integrated financial planning services over time.  

Therefore, plans in Recommendation 6 to restrict individual designations, qualifications and credentials that intersect with a holistic financial planning solution, may not be in the best interest of the consumer. 

Rather, we recommend that a more inclusive, rather than exclusive approach be adopted, particularly if Recommendation 8 Financial Literacy and Investor Education is to be meaningful.   

For your further consideration, we would like to recommend that any regulatory framework ultimately adopted advance the following principles and skills in a co-ordinated and well-defined financial eco-system: 

  • A Culture of Empowerment – A system of self-assessment should be adopted and the burden of proof should rest with the advisors working with clients in Financial Planning. 
  • Collaborative Technical Educational Path – In providing guidelines for undergraduate competencies and continuing professional development, the practice of charging providers again and again for accreditation, often by competing organizations, is not only a conflict but a tremendous waste of resources that could be better spent to develop relevant educational programming and doing meaningful research.  This should be discontinued in favor of a defined syllabus developed by all the stakeholders to the proficiencies required by the profession,  invited to contribute expertise.
  • Education on Care Standards:  Ethics, Behavioral Finance, Responsible Business Practices Relating to Statutory Best Interest Duties.  To your Recommendation #4 – we question whether exemptions should be granted to “mere order takers” where no “financial advice” is being provided.  In the absence of a definition of “financial advice” we feel this is counter-productive to the task.  Rather, we would recommend for all stakeholders working with clients in the financial services, a common thread be developed to link obligations and responsibilities.  This may encompass:  
    • Care Standards:  Best interest duties must be defined and openly communicated to all parties.
    • Ethical Standards:  Training in ethics, conflict management and how confidential communications are handled across professional stakeholder teams is required to enable consumers to make sense of their financial marketplace, assess information being given to them and then maximize their resources.  These three goals were outlined in the recommendations for the role of financial advisors in the recommendations of the Federal Task Force on Financial Literacy.1
    • Advice Standards and Client Responsibilities:  Despite best efforts, it is very possible that the advisor/planner does not see all aspects of financial activities in the family, and therefore cannot act in the best interest of the family.  Alternatively, the family or individuals within it, may not take the advice, or integrate the plan, yet hold the professional accountable in the future.  Professionals working in financial services, including order-takers, must be enabled to limit their liability to regulatory punishment in those circumstances.  They should be directed on how to arm the client with knowledge and skills to make responsible decisions while articulating specific limits to their own liability.    
    • Technical expertise.   Those involved in financial planning and wealth management, as opposed to order takers, require a deep and broad knowledge in multiple technical subject areas to work with the various stakeholders to a sound financial plan. It is our recommendation, as a supplement to your Recommendation 2, Harmonization of Standards, that this should include the following in a core body of knowledge (undergraduate degree) as well as ongoing professional development that is issues-based (an academic path in continuing professional development) to match changes in the economy and tax law for individuals, families and the business:
      • Planning for Education
      • Planning for Disability
      • Debt management
      • Budgeting and Cash Flow management
      • Tax – personal, corporate, trust
      • Investment
      • Retirement
        • Succession
        • Estate planning
        • Multi-generation planning
        • Business planning
        • Strategic philanthropy
        • Personal and corporate risk management for critical illness and death
        • Management of family and business net worth.
  • Lifelong Learning.  Having one universal set of regulatory standards and guidelines is highly desirable, but these rules must be flexible enough to enable the ongoing addition of new knowledge and skills in a rapidly changing world.  To that end, any single license or designation is no guarantee of current, relevant and useful skills.  Rather it is a commitment to lifelong academic excellence in continuing professional development that will make the difference in measurable accountabilities.
  • Designations, qualifications and credentials that reflect entry level proficiencies and then ongoing specialization must be delivered by experts that can drill down in each area of specialization with an understanding of how the expertise links to a holistic financial plan.

SUMMARY AND CONCLUSION

We believe that the role of every professional is that of educator, advocate and steward for their client’s financial peace of mind.  Regulation can facilitate this three-part role, but it can also inhibit it with unnecessary complexity.

Our comments reflect on 13 years of experience developing an academic path to continuing professional development, leading to specialization in providing tax efficient wealth management services.  These award-winning programs have been delivered to tens of thousands of individual professional financial advisors from all sides of the tax and financial services, as well as numerous national firms who represent an extensive network of financial professionals who provide financial planning, advice, and product sales. 

We have also educated millions of consumers, through our consumer financial book publishing efforts with a multitude of best-selling authors, who teach financial literacy with appearances on radio and television, columns in newspapers and industry publications, and various online media and chat lines, answering questions on tax planning and preparation, financial planning and wealth management.   As a result, we also have developed an extensive relationship with a network of business reporters that spans more than 20 years.  They have helped us to develop education that speaks to broad-based economic concerns. 

In addition, having had the honor of serving on the Federal Task Force on Financial Literacy, our ongoing commitment to excellence in financial education embraces the broadly-accepted definition of financial literacy developed by the Task Force; this, in recognition of the essential financial life skills Canadians need help with, in a complex financial marketplace: 

Financial literacy is the knowledge, skills and confidence to make responsible financial decisions.

Amidst the thirty recommendations for shaping the future of financial well-being in Canada, objectives for the work of the financial services community were developed by the Task Force.  Specifically, they included helping clients2:

  • make sense of the financial marketplace and buy the products and services best suited to their needs 
  • assess the financial information and advice they receive from relatives and friends, professionals or the media, and 
  • maximize the use of the resources they have access to, including workplace benefits, private and public pensions, tax credits, public benefits, investments, home equity, and access to credit. 

It is therefore our view that a comprehensive legal framework set up to regulate the activities of individuals and firms that offer professional financial planning services, needs to be measured against these broad client-centric objectives. 

To be effective, regulation must be simple, fair and equitable and promote compliance.  It must have the end in mind.   Regulation that promotes a healthy financial eco-system will empower advisors and protect consumers in their participation in the multi-faceted financial marketplace. 

What that eco-system looks like, how it functions and what the role of integrated regulation is in it, is the real opportunity in getting these recommendations right. 

Thank you for this opportunity to express these views, appear before you, and hopefully to contribute to your difficult task.

Evelyn Jacks, President

Knowledge Bureau

 

1 See concluding comments that embellish on these goals.

2 Task Force on Financial Literacy, Canadians and Their Money: Building a brighter financial future (2010)

 

PREVIOUSLY SUBMITTED

To the Expert Committee, Ontario Ministry of Finance
Financial Advisory and Financial Planning Policy Alternatives
By email:  Fin.Adv.Pln.@ontario.ca

We would like to thank the Expert Committee for the opportunity to comment on this consultation.  Knowledge Bureau is a national educational institute that has been providing continuing professional development to financial professionals for thirteen years, working in collaboration with investment product manufacturers, distribution firms, investment advisors and financial planners. 

To that end, we trust that our comments, as they relate specifically to continuing professional development, are complimentary to the good work of other leaders in the financial industry. If we can be of assistance in your deliberations, please don’t hesitate to call on us.              

Sincerely,
Evelyn Jacks, President
Knowledge Bureau

ABOUT KNOWLEDGE BUREAU

Knowledge Bureau publishes and offers twenty-six online self-study courses qualifying for continuing education certification and leading to occupational skills diplomas. It is the home of the MFA™ (Master Financial Advisor) designation, which signifies specialization in retirement, business succession and estate planning in wealth advisory practices. Knowledge Bureau is also home to the DFA (Distinguished Financial Advisor) Tax Services Specialist™ and DFA Bookkeeping Services Specialist™ designations for professionals in the tax, bookkeeping and accounting services.  Its weekly news publication, Knowledge Bureau Report, is read by over sixteen thousand advisors and is active in social media, print and television.

Founded in 2003 by bestselling author and internationally acclaimed education provider Evelyn Jacks, Knowledge Bureau is a regular contributor on national media, providing commentary on federal and provincial regulation, specifically as it relates to tax and economic policy and global wealth management.

Evelyn has been influential in advising governments on tax and financial literacy policies.  She was appointed by former Finance Minister, Jim Flaherty, to the Federal Task Force on Financial Literacy. She was also appointed by former Premier of Manitoba, Gary Filmon, to the Lower Tax Commission to advise on the direction of the provincial tax regime.  Recently, Evelyn has co-founded the Manitoba Financial Literacy Forum in partnership with the Manitoba Securities Commission, dedicated to increase financial literacy in that province.

Who Are We?

Knowledge Bureau™ is a private, national Canadian educational institute and publisher focused on excellence in financial education for professional advisors and their clients.

Vision

Knowledge Bureau provides a world class virtual campus for practitioners in multiple disciplines to acquire ongoing knowledge and cutting edge skills leading to specialization and mastery in delivering tax and financial services.

Mission

Knowledge Bureau provides an academic path to continuing professional development with certification courses leading to diplomas and mastery designations in specialized financial industry competencies.  

Mandate

To raise standards of excellence for advisors who specialize in the areas of tax, bookkeeping, investment advice, retirement, succession and estate planning services.  

Philosophy

Continuing professional development in financial services requires the ongoing acquisition of skills and knowledge based on current tax, economic and regulatory issues. Financial advisors need to work collaboratively with clients, providing enhanced advice and joint decision-making, together with clients and their multiple advisors.  Strategic wealth planning however is required where multiple stakeholders are concerned and sustainable family wealth management across multiple generations is the client’s objective. Knowledge Bureau has developed an educational framework around which multi-faceted technical & strategic skills are taught, known as Real Wealth Management™

Unique Value Proposition

Knowledge Bureau differentiates its educational content from other programs by integrating a rich understanding of tax and its implication on both individual investment decisions and intergenerational planning.  A blended learning environment is offered: online courses supplemented by workshops and conferences.   In addition to creating and delivering timely, comprehensive, practical, and immediately applicable courses for financial professionals, Knowledge Bureau partners with many national firms to provide award-winning in-house curricula.

SUBMISSION:   BACKGROUND INFORMATION

Currently in Ontario, no general legal framework exists to regulate the activities of individuals who offer financial planning, advice and services. The absence of a legal framework has raised questions about proficiency, quality standards and potential conflicts of interest.

Objective:  To investigate the merits of more tailored regulation for individuals engaged in financial planning and the giving of financial advice. Key recommendations will be provided in a final report, for review by government in 2016.

QUESTION 1:  What activities are within the scope of financial planning? Is the provision of financial advice different from financial planning? If so, please explain the distinction.

Yes, we believe that financial services required by individuals in various age and demographic groups, personal circumstances  and with varying levels of wealth, fall into three, rather than two categories:  financial advisors, financial planners and family wealth managers, as described below.  The provision of financial advice related to product selection is indeed different from the provision of financial planning and family wealth management;  however there is a common thread:  each provide objective-based advice that will match the plan to the product. 

Financial Advisors:  These practitioners work with investors (and financial planners and family wealth managers, if they are any involved) as product experts to find,  recommend and execute on the appropriate product options required to fund and manage risks to various life events.  These can include education, home ownership, retirement, incapacity, estate, and succession planning.  They are accountable for choosing the right product solutions to meet needs based on decisions made jointly between the client and the planner (if there is one). They are also accountable for ongoing portfolio mix rebalancing and advice on timing and amounts of disposition of investments.  Their role is as important at the time of investment as it is at the time of disposition and their competencies should encompass knowledge about other financial consequences of their actions, such as tax and legal consequences.  

Financial Planning:  This discipline sets out the process required to achieve financial results with accountability over and above those required from investment activities alone.  Financial planners work with individual clients or individual family households to identify financial objectives for income and capital, choices in managing money, and the types of investments that are suitable for the funding of specific life and financial events.  These families may not yet have reached wealth management goals but are seeking help with investment principles and processes.  They may also be working with multiple financial advisors.

Financial planners require competencies that include development of financial objectives specific to needs, analysis of income and capital, budgets and net worth statements as well as tax returns.  They may develop plans that direct savings into the right investment vehicles for specific purposes, with a focus on minimizing erosion of income and capital from taxes and fees.  They may participate in planning associated with family asset transfers.  

Family Wealth Management:  This discipline focuses on the strategic application of financial planning principles and related investment solutions to the objectives of the family as a whole over multiple generations, where applicable.  Generally, but not exclusively, planning activities are specific to families with high net worth and may include the management of assets in personal, corporate and trust accounts.  Tax is an important consideration for these families as it can erode over fifty percent of their wealth, depending on the tax brackets of individuals in the family and the type of assets held.  

The duties of care provided by the family wealth advisor therefore revolve around a strategic plan that identifies stakeholders to the wealth plan, including other family members and professional advisors such as tax, insurance and legal advisors.  Family wealth managers may also work in conjunction with other financial planners who serve individual family members.  Competencies may include the development of family net worth statements and customized wealth management plans specific to family objectives. 

The evolution of these roles has been more pronounced as a result of the recent growth of wealth in Canada particularly by an aging demographic and their families3.  As a result, there is a renewed demand for financial advice, financial planning and in our view, the third category of services, family wealth management, as described above.  

Like other professions – ophthalmology, for example – the services required by the client ultimately may include a variety of products and related service competencies.  Practitioners, who excel at fitting the perfect pair of glasses, will not also repair an optic nerve or manage the various diseases of the eye.  Their educational requirements are different, as is their compensation and the regulation of the quality of their services.

QUESTION 2:  Is the current regulatory scheme governing those who engage in financial planning and/or the giving of financial advice adequate?

Respectfully, no.  While there is regulation relating to financial advice, there is no regulation overseeing financial planning.  It is also not clear where the two meet in relation to delivering a holistic solution to the client that is objective-based over a period of time.

QUESTION 3:  What legal standard(s) should govern conflicts of interest and potential conflicts of interest that may arise in financial planning and the giving of financial advice?

While we cannot comment on legal standards, we have the following comments on avoiding conflicts of interest and potential conflicts: 

Assisting advisors and planners in this regard begins with a clear definition of what is to be regulated. All stakeholders involved in the delivery of financial recommendations should clearly understand the parameters of their specific roles, what their responsibilities are, professional competencies they must have in order to practice in their role and resulting penalties should they perform short of the requirements.

Generally accepted principles for the development and execution of individual financial plans and for family wealth management would help to ensure client objectives are identified and met with appropriate solutions.  These guidelines, however, must be revisited periodically in relation to tax and economic changes in a multi-faceted marketplace and must be accountable to improvements in personal and family net worth.  These process will help advisors stay onside of legal standards.

QUESTION 4:  To what extent, if at all, should the activities of those who engage in financial planning and/or giving financial advice be further regulated? Please consider the following in your response:

Our comments below are specific to the efforts assigned to continuing professional development of a dynamic industry in which financial advice, planning and wealth management is provided against the backdrop of rapid change.

a) Licensing and registration requirements;

We believe that a rigorous academic path to continuing professional development that leads to specialized expertise is very important, as opposed to a random path.  

In addition, rapid changes in the marketplace, driven by technology, regulation, the economy, changes in taxation rules (TFSA maximum contribution limits and RRIF withdrawal requirements as recent examples), and demographics in general, require continual and meaningful updating of licensing and registration requirements.  

Impediments to the provision of broad educational choices for continuing professional development currently include a significant duplication of costs and time in meeting requirements through multiple accreditation channels  (example:  a one hour Continuing Education (CE) credit should not cost the educational provider thousands of dollars as a result of approval from multiple organizations).

b) Education, training and ethical responsibilities;

The integrity of the capital market system can be eroded by inadequate education of those who work with investors, not just at the time of licensing, but on an ongoing basis. Regulators should allow for broad participation in the development of educational standards, curricula and delivery of instruction by expert educators and educational institutions focused on the needs of the industry.  These stakeholders should be allowed to participate in ensuring educational guidelines and curricula are in sync with rapid changes in the marketplace.

Financial advisors, planners and wealth managers need to monitor the acquisition, continued holding and ultimate disposition of securities as well as the behavioral finance related to their dealings with clients.  Their role includes the education of the client, advocacy for the client and stewardship of the client’s resources. Training in each of these roles as well as ethics and fiduciary duties may form a part of ongoing educational requirements.    

c) Titles and designations of individuals who engage in financial planning and/or the giving of financial advice;

Advisors, financial planners and wealth managers should be encouraged to continue to obtain specialized knowledge beyond their current license, titles or designations.  This is particularly critical in the practice of family wealth management where a broad and deep knowledge in the areas of business planning, tax and estate planning, for example, are required to provide detailed, holistic solutions, often for multiple stakeholders in the family. We recommend an open architecture in the ongoing achievement of specialized titles and designations that follows educational guidelines appropriate for emerging trends in the industry.

d) Specific activities that should be included or excluded in a regulatory scheme;

Financial planning should include comprehensive family wealth management.

e) Costs and other burdens of regulation;

As discussed above, from an educational provider’s point of view, curriculum that requires approval from regulators or accreditors should only need to be vetted and charged for, once.   

f) Complaints and discipline mechanisms.

Educational institutes which grant licenses to use certification marks must provide standards of proficiency and testing as well as codes of conduct and continuing education required before issuing such certification, licensing and re-licensing.      

QUESTION 5:  What harm(s) and/or benefit(s) do consumers experience in the current environment? Please provide specific evidence to support your views where available.

Financial advisors and financial planners provide a very important service.   However, a silo-approach to regulatory oversight is not conducive to inter-advisory consultation to the benefit of clients.  

QUESTIONS 6:  Should consumers have access to a central registry of information regarding individuals and entities that engage in financial planning and the giving of financial advice including their complaint or discipline history?

Yes, this is certainly of assistance but financial advisors are already listed under the CSA website.  Insurance agents and financial planners should also be listed.    

 

3 According to Statistics Canada, amongst the 20% of family units with the highest incomes, or top income quintile families, average wealth increased by 80% between 1999 and 2012, rising from $721,900 to $1,300,100.