: MD Financial Management - Submission


September 21, 2015

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

Submitted by:
MD Financial Management
Contact: Julie Seberras, Financial Planning Lead

Submission Re: Financial Planning/Advice Consultation

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.

Financial Planning is a multi-step process that includes establishing the terms of engagement, conducting a proper discovery, analyzing data, developing a plan and recommendations, presenting to the client and validating understanding, implementing the recommendations, and monitoring the plan to adjust as needed for changing client circumstances and assumptions.  Financial Planning also covers six core topics including Financial Management, Investment Planning, Tax Planning, Risk Management, Retirement Planning, and Estate Planning.  A comprehensive financial plan should include all aspects.  Recommendations and strategies should be developed while considering all aspects of the client’s situation in all areas of financial planning.

Financial advice is one component of the financial planning process, but cannot stand alone without the other steps to ensure that all information pertinent to the client’s situation has been gathered, the proper analysis has been conducted, and presented to the client to validate understanding.  Financial advice may be limited to one topic of financial planning.  Consideration of financial planning topics is not required.  Financial advice could be given on investments, without considering how the investments should be structured so that taxes are minimized and it is consistent with the estate plan, as an example.

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

The current regulatory scheme does not provide any distinction for the consumer to understand the level of proficiency that the advisor has completed. The title Financial Planner is not regulated and therefore can be used by anyone, regardless of the level of proficiency that has been achieved.  Those who have satisfied the requirements of the Certified Financial Planner designation can use the marks/ designation awarded to them, and consumers can go to the Financial Planning Standards Council (FPSC) website to verify that they are in good standing.  However, the consumer may not understand that someone with the title Financial Planner who holds a CFP designation has satisfied additional educational requirements than a Financial Planner who does not hold a CFP designation.

The regulatory scheme that exists for financial planning in Quebec does restrict the activities of someone who has not completed the appropriate proficiency and cannot hold themselves out as a financial planner. They look to educate the investing public on the types of services and level of advice they can expect to receive.  This model may be more appropriate than the current one used in Ontario.

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?

It is our view that the current statutory standard of care, namely the duty to act fairly, honestly and in good faith and, where applicable based on circumstances, applying a common law fiduciary standard, in addition to the requirements under National Instrument 31-103 with respect to the disclosure and proper handling of conflicts of interest and the enhanced disclosure rules in CRMII adequately protects our clients.

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:

Financial Planning includes six core topics including Financial Management, Investment Planning, Tax Planning, Retirement Planning, Risk Management, and Estate Planning.  Advice on investments is a heavily regulated component of financial planning, and this aspect of financial planning cannot be fully delivered to a client without the appropriate licensing.   However, the other financial planning topics do not have the same oversight.  To protect the consumer, all aspects of financial planning should have some form of regulation.

Licensing and registration requirements; Education, training and ethical responsibilities:

The CFP designation is currently regulated by FPSC.  All designation holders have completed the necessary education and experience requirements. They must also keep their registration in good standing.  This includes obtaining the appropriate amount of Continuing Education credits each year to ensure that CFP professionals are current.  They also provide the profession with a Code of Ethics and Practice Standards to comply with.  This provides a solid framework for licensing and registration.

Titles and designations of individuals who engage in financial planning and/or the giving of financial advice:

The title of Financial Planner should only be used by those who have completed the proficiency requirements, preferably the CFP designation.  Designation holders have completed both the education requirements, in addition to the experience requirement and are therefore qualified to provide advice and recommendations in all areas of financial planning. At a minimum, a CFP professional has awareness of all areas, and understands when an expert is required to provide advice on more complex issues. Titles throughout the industry should have more consistency and provide clarity to the investing public as to what services the advisor can provide and areas of expertise. 

Costs and other burdens of regulation:

Additional regulation does come at a cost.  The burden of regulation would primarily sit with the dealers, which would require additional resources, and is often then reflected in the fees charged to the investor so that firms can cover these costs.  It is important that these fees be minimized as much as possible as Canada does already charge higher investment management fees than the rest of the world, affecting the investor’s ability for higher returns to grow their wealth.  By taking the existing framework of the CFP designation, any costs associated with establishing a regulatory framework should be minimized. 

Complaints and discipline mechanisms:

FPSC currently has an Enforcement Committee who is responsible for reviewing and providing recommendations about disciplinary action that should be taken against CFP Professionals who have not been compliant with the standards of the profession.  The Committee is made up of CFP’s and members of the public.  Currently any decisions that involve discipline are not widely communicated, but can be found by searching for the CFP Professional specifically on the FPSC website.  As well, any discipline does not affect the advisors ability to have financial planning discussions with clients as this area is not regulated.

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

In the current environment, there is little clarity on the services that can be offered based on title.  With titles that specifically call out a specialty, consumers can likely understand that the service is limited to that specific area ex: Insurance specialist.  However, broader titles such as Financial Advisor or Financial Planner could cover all areas of financial planning, or could be limited to certain topics of financial planning.  The consumer may not have a level of financial literacy to know how to ask the necessary questions as to what may or may not be included in their services.  For example, with a title of Financial Advisor, they may only provide services under Financial Management and Investment Planning.  The consumer may not understand that their financial plan also requires Risk Management, Tax Planning, Retirement Planning, and Estate Planning.  The gaps in their financial plan may not become evident until they are faced with death or disability as an example, and it is too late at that point in time. 

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?

A registry of information regarding individuals who engage in planning and any compliant or discipline history should be made available to the public.  The consumer should be encouraged to conduct their own research about their financial planner so that they can feel peace of mind about the professional they are working with.    Should there be any disciplinary action taken against the financial planner, this information should be made available to the public and communicated via the dealer/ regulator to the existing clients so they are made aware.