: Canadian Securities Institute - 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 Fin.Adv.Pln@ontario.ca

Re: Comment on Initial Consultation Document

The Canadian Securities Institute (CSI) is pleased to submit the following remarks in response to the request for comments from the Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives.

CSI is the leading provider of accredited financial services proficiency learning solutions in Canada. We offer proficiency courses/exams for securities, mutual funds and insurance licensing purposes. Our expertise extends from securities to banking and insurance, from portfolio management and personal trust to financial planning and wealth management. CSI offers a broad range of specialized certificates and designations including the Personal Financial Planner (PFP®) designation. Our financial planning programs are the most popular educational routes chosen by candidates challenging the Certified Financial Planner (CFP®) examinations.

In this submission we have addressed each question as set out with the consultation document.

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.

A comprehensive financial planner has the ability to review and analyze all of the aspects of a client’s financial situation (budgeting, net worth, retirement, debt and risk management, investment needs, taxation and estate planning considerations), develop a financial plan to meet the client’s financial goals and continually review and update the plan with the client. For further illustration of the activities of a financial planner as well as the knowledge requirements, the Expert Panel is referred to the financial planning competency profiles published by CSI (for the PFP® designation) and the FPSC (for the CFP® designation).

As such financial planning encompasses a wide range of activities, but these activities are not exclusive to comprehensive financial planners. Comprehensive financial planning is one type and level of advice within a continuum of financial advice available to consumers. The type of advice required depends on the client’s financial and life stage and the complexity of products and services being sought. Certain types of advice are only available to those who have sufficient financial resources. This (somewhat subjective) continuum below positions financial advice from basic to complex as:

  • Basic credit and savings (credit cards, loans, mortgages, savings accounts)
  • Basic investment and retirement advice (RRSP, RESP, TFSA)
  • Risk management (life insurance)
  • Investment advice (mutual funds, securities, alternative investments)
  • Comprehensive financial planning
  • Discretionary portfolio management
  • Estates and trusts planning and management
  • Wealth management

Although there is overlap, each type and level of advice has different knowledge and experience requirements. As such individuals, for example, providing insurance advice, should not be held to the same level of proficiency as those providing comprehensive financial planning services. At the same time, while the nature of financial planning requires the application of some level of knowledge across the continuum of financial advice, financial planners should not be expected to demonstrate, for example, the level of investment knowledge that a portfolio manager possesses.

Regardless of the level of advice being provided, all advisers must meet appropriate standards, possess the required competencies and be subject to and apply the concepts of knowing the client (situation, needs, goals and risk tolerance), knowing the product (structure, benefits, risks, costs and disclosure), suitability (based on KYC and KYP) and of ethical behaviour as these are critical to providing appropriate advice and protecting consumers.

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

We believe that the current regulatory framework provides adequate oversight of financial advisors and financial advice (including financial planners and financial planning). Our reasoning is outlined below.

• A sufficient regulatory framework is already in place

Financial advisors are generally licensed to sell a financial product by an established national or provincial regulator. These regulatory frameworks have been in place for many years and have evolved from regulating product sales and transactions to a more fulsome oversight of the clientadvisor relationship.

Specifically, the regulators currently overseeing financial products and hence client advice (in Ontario) include:

  • Securities: Ontario Securities Commission (OSC), Investment Industry Regulatory Organization of Canada (IIROC)
  • Mutual Funds, Exempt Market Securities, RESPs: OSC, Mutual Fund Dealers Association (MFDA)
  • Life Insurance: Financial Services Commission of Ontario (FSCO)
  • Banking Products: Office of the Superintendent of Financial Institutions (OSFI), Financial Consumer Agency of Canada (FCAC)
  • Mortgage Brokering: Financial Services Commission of Ontario (FSCO)

Each of these regulators has the enforcement authority, organizational structure, policies and procedures in place to oversee financial services firms and their advisors.

The regulation sets out the conduct and ethical requirements and (if required) the licensing courses/exams to be taken by advisors. Additionally, most licensed advisors are also subject to ongoing continuing education requirements.

• Regulatory requirements and oversight continue to evolve

The various regulatory organizations have demonstrated the commitment to raising the bar on issues relating to financial advice such as consumer protection and proficiency standards in order to meet changing needs of consumers and the industry.

Examples include:

  • The OSC, IIROC and the MFDA have made significant reforms over the past few years implementing the Client Relationship Model which addresses many important areas of the advisory relationship such as conflict of interest, suitability, disclosure and transparency.
  • IIROC has raised its proficiency requirements over the years to meet increasingly complex investor needs and regulations. For example, the introduction of the Wealth Management Essentials Course as the 30-month post-licensing requirement recognized that investment advisors should have strong competencies in many elements of both financial planning and investment management and be able to integrate each into an appropriate level of advice for clients. 
  • The requirements for licensing of life insurance agents continue to be updated with a new harmonized LLQP curriculum and examination structure being introduced in January 2016.
  • In 2009, under NI31-103 the Canadian Securities Administrators (CSA) introduced the exempt market dealer registration category and imposed proficiency requirements and client relationship regulations on firms and individuals in this category. 
  • In 2007, FSCO raised the licensing proficiency standards for mortgage brokers and agents in Ontario and have recently improved upon this standard by introducing mandatory re-licensing education requirements.

• “Holding Out” provisions have been strengthened

Over the past few years, guidelines related to “holding out” and use of titles have been strengthened by various regulators. Examples include:

IIROC’s guideline “The Use of Business Titles and Financial Designations by Financial Advisors” states:

“Dealer Members and their representatives have an overarching regulatory obligation to deal fairly, honestly and in good faith with clients. No IIROC approved person should hold his or herself out to the public in any manner, including without limitation, by the use of a business title or designation of qualifications or professional experience that deceives or misleads, or could be reasonably be expected to deceive or mislead, a client or any other person as to the IIROC approval they hold, their proficiency or qualifications”.

MFDA Rule 1.2.1 (d) states:

“No Approved Person shall hold him or herself out to the public in any manner including, without limitation, by the use of any business name or designation of qualifications or professional experience that deceives or misleads, or could reasonably be expected to deceive or mislead, a client or any other person as to the proficiency or qualifications of the Approved Person under the Rules or any applicable legislation”.

It should be noted that the MFDA has recently issued a proposed rule for public comment that considers whether approved persons using the title of “financial planner” would have to hold a recognized financial planning designation.

Regulators also provide guidance pertaining to designations to ensure that the designations and the organizations that offer them are credible. For example, IIROC’s “The Use of Business Titles and Financial Designations by Financial Advisors” guidelines states:

“When firms are deciding whether to approve the use of a financial designation by an individual registrant, consider whether the designation has: (i) a rigorous curriculum and examination process (i.e. type and length of exam); (ii) experience requirements; (iii) an emphasis on ethics; (iv) a continuing education requirement; (v) a method for determining the individual’s current status regarding the designation; (vi) a public complaint and disciplinary process; and/or (vii) been issued by a reputable or accredited organization.”

• Increased professionalism of advisors beyond basic licensing

The industry is trending towards greater professionalism of financial advisors with many advisors obtaining professional designations that increase the breadth and depth of their level of knowledge and expertise beyond the basic licensing requirements.

To be credible a financial advice designation must meet rigorous standards. In the area of financial planning, examples include the Personal Financial Planner (PFP®) and the Certified Financial Planner (CFP®) designations. Each of these industry recognized designations have set standards, based upon a professional competency profile, that include significant education, a certification examination, relevant experience, on-going professional development and adherence to a code of ethics and disciplinary process. These two designations are accredited under an international standard for organizations granting certifications (ISO 17024).

There are other credible designations that enable advisors to expand their areas of expertise to respond to the needs of a broader spectrum of clients. There are also a number of certificate programs and continuing education courses that can also complement licensing requirements by allowing specialization and keeping advisors current.

This trend of increased professionalization of advisors should be applauded and encouraged by regulators and employers as viable approaches to raising standards in a flexible and responsive manner that responds to changing consumer needs and expectations.

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?

We believe that a suitability and know your client standard should apply in all circumstances in the provision of financial advice with the exception of situations where discretionary powers have been granted to the advisor or the advisor is clearly acting on behalf of the client; in such cases a fiduciary standard should be applied.

The current standard in the securities industry is a good example of a standard that would be acceptable for any level of financial advice. It reflects the core and long-standing obligation under securities legislation in Canada where there is an imposed duty on registered advisers and dealers to deal fairly, honestly and in good faith with their clients. In Ontario this standard is set out in OSC Rule 31-105 Conditions of Registration. This duty applies to advisers and dealers broadly in all dealings with their clients.

IIROC Rule 29.1 supplements that standard by requiring all firms and their employees to (i) observe high standards of ethics and conduct in the transaction of their business, (ii) not engage in any business conduct or practice which is unbecoming or detrimental to the public interest, and (iii) be of such character and business repute and have such experience and training as is consistent with the standards established by IIROC. Rule 1300.2(a) further requires firms to ensure the handling of client business is within the bounds of ethical conduct, consistent with just and equitable principles of trade and not detrimental to the interests of the securities industry.

4. To what extent, if at all, should the activities of those who engage in financial planning and/or giving of financial advice be further regulated?

It is our position that the current regulatory framework provides sufficient regulation for those who engage in financial planning and/or giving of financial advice.

• Lessons Learned from Other Countries

To further support our view that the current regulatory framework is sufficient, we refer the Expert Committee to the United States and the United Kingdom experience of reform in this area.

A study undertaken by the United States Government Accountability Office (GAO) addressed the issue of additional oversight of financial planning in the United States. The resulting report released in January 2011 found that:

“In general a majority of the regulatory agencies, consumer groups, academics, trade associations and individual financial service companies did not favour substantial structural change in the regulation of financial planners”.

Few groups supported an additional oversight body which was generally seen as duplicative of existing regulation. The GAO report specifically noted that with the current discussions amongst regulators that more time should be given to allow for the existing opportunities for greater enforcement to come out of the current changes being under taken by existing regulators.

The Financial Conduct Authority (FCA) in the United Kingdom introduced sweeping financial advice regulatory changes in 2012. To follow up on the effects of these changes on the consumer, a study was carried out to address the potential gap in financial services advice (Advice Gap Analysis December 2014). This study showed that

“While there was no advice gap resulting from an overall shortage of advisors that adviser capacity may not be optimally aligned at customer segment level supported by evidence that advisors are focussing on customer segments that are most likely to be able to afford such an offering, or where the benefits of taking advice are most cost-effective”

Subsequently, to address these issues, a second FCA initiative was announced in August 2015: Financial Advice Market Review: Terms of Reference. The review will consider the current regulatory and legal framework governing the provision of financial advice and guidance to consumers and its effectiveness in ensuring that all consumers have access to the information, advice and guidance necessary to empower them to make effective decisions about their finances.

These examples reinforce the need to ensure that regulation does not become so burdensome that financial institutions and their advisors find that serving all income levels of consumers is no longer attractive from a business perspective resulting in reduced availability of financial advice for the consumer.

• Potential Improvements In Proficiency Requirements

While we believe that the current framework provides sufficient advisor oversight, there are areas within the current framework that could benefit from further improvement such as:

  • Mutual Fund Representatives

The Ontario Securities Commission sets proficiency requirements for mutual fund representatives in National Instrument 31-103. The current licensing requirement completion of either CSI’s Investment Funds in Canada course or IFSE’s Canadian Investment Funds course. These courses primarily cover product knowledge ethics and regulations with limited focus on financial planning concepts. While most mutual funds representatives do not provide comprehensive financial planning they are required to know their client and know their product. Therefore additional advisory and financial planning skills may be beneficial to meet evolving client needs. As such, the proficiency requirements could be improved by the inclusion of additional financial planning concepts in the licensing courses or by adding a post-licensing requirement (such as the IIROC 30-month requirement).

  • Life Insurance Representatives

FSCO, as a member of Canadian Insurance Services Regulatory Organizations (CISRO), is taking a very active role in reviewing and adjusting proficiency requirements for insurance agents. The new curriculum and LLQP exam will be released in January 2016 as the project to harmonize proficiency across Canada is implemented. As with mutual funds, all life insurance salespersons do not provide comprehensive financial planning but they must know their product and ensure client suitability. They also provide advice on investments via segregated funds. There may be an opportunity to expand the competence of insurance representatives in the areas of evaluating a client’s overall financial situation as well as investing by further upgrading the licensing requirements or introducing post-licensing requirements.

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

The major benefit of the current framework is that financial advice is available to Ontarians at all income levels. This is extremely important especially at this time when defined benefit pension plans are less prevalent and consumers are facing investment choices that will have a major impact on their retirement. Today consumers at all income levels can receive the level of advice suitable to their specific situation.

However, today’s consumer is overwhelmed by the range of financial products and unfortunately, the average consumer is not armed with the requisite financial knowledge to understand and assess the product for a suitable fit. Fortunately, there are currently a number of broad financial literacy initiatives being undertaken to deal with this situation and these should continue to be supported by the government and industry.

Through the various client relationship rules and guidance available there is also an onus upon the advisor to provide the consumer with clear and sufficient information on the product and to ensure that the product is suitable for the consumer.

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?

The current regulators providing product sales licenses for advisors have registries in place and available to consumers. These sites generally provide information on complaint and/or discipline action. These registries already provide sufficient information on mutual fund, insurance and securities licensed advisors. Consumers are also able to confirm a financial advisor’s professional designation on publicly posted listings provided through the professional organization granting the credential. Therefore we do not believe a central registry is required.

In Conclusion

CSI believes that:

  • The existing regulatory bodies have the mandates and ability to regulate the various forms of advice and types of advisors. With recent initiatives such as CRM, increased proficiency requirements and holding out provisions, regulators have shown that they can continue to adapt regulations to meet changing needs of consumers and the industry.
  • Any new initiatives should focus on the range of advisory services and not solely on financial planning. While financial planning elements are key to any KYC and suitability discussion with a client, comprehensive financial planning is only one of many forms of advice within the advisorclient continuum.
  • Most financial advisors are licensed for securities, mutual funds or insurance and regulatory bodies in each vertical oversee the KYC, KYP and suitability activities of their licensees. It would be beneficial that these regulators continue to enhance and harmonize their holding out and titling provisions while ensuring that advisors have the competencies and experience to support their titles. In doing so, regulators should collaborate with and leverage the expertise of credible designation-granting organizations as they look to raise the professionalization of advisors.

CSI looks forward to further participation in this important consultation process and policy debate. Do not hesitate to contact me to further discuss our recommendations.


Marc Flynn Senior Director Regulatory Relations and Credentialing Canadian Securities Institute (CSI)