: Central 1 Credit Union - Submission

Mssrs. Malcolm Heins, Paul Bates, Lawrence Haber and Mme. Anita Anand
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

August 27, 2015

Dear Sirs and Madam,

Central 1 Credit Union (“Central 1”) thanks the government for establishing a public consultation process around the regulation of individuals offering financial planning and advice. We appreciate the opportunity to comment, from a credit union perspective, on the future of financial planning regulation in Ontario.

Executive Summary

This submission will first provide a background on the credit union system in Ontario, and Central 1’s role within that system. Second, the regulatory landscape in which the contemplated legislation has been raised is addressed. Third, we convey our members’ position that regulation of individuals offering financial planning and advice is needed, but that the majority of the risk resides with unregulated financial institutions. Should new legislation include an exemption for employees of regulated financial institutions such as banks or insurance companies, credit unions should be included. The remainder of this submission sets out our positions on the codification of existing certifications, financial services titles, professional self-regulation and other related matters.

The Credit Union System

Central 1 is the primary liquidity manager, payments processor and trade association for member credit unions in Ontario and British Columbia. It provides financial products, investment banking services, payment-processing solutions and direct-banking services, as well as leadership and advocacy on behalf of 83 Ontario credit unions and the entire B.C. credit union system.

In the first quarter of 2015, Central 1’s 83 Ontario credit unions reported 1,334,039 members and over $37 billion in assets, serving 190 communities, including 29 where branches of credit unions are the only financial services provider. As of the fourth quarter of 2014, Ontario credit unions accounted for $883 million in salaries and benefits and provided 5,733 direct high-paying jobs and 11,431 indirect jobs in 2014.1 Additionally, credit unions have $30.4 billion invested in loans and mortgages to local households and businesses.2

Central 1’s response is informed by the opinions of our member credit unions, as well as international standards and best practices in the area of financial planning certification and regulation. We have chosen to focus our comments on specific issues raised by the Consultation Paper rather than addressing each question in isolation. Some of the issues raised are more effectively addressed as part of a dialogue. We would appreciate the opportunity to continue the dialogue with the Expert Committee and the Ministry of Finance on the important issues raised by the Consultation Paper. Ontario credit unions support the provincial government taking the initiative to analyze the regulation of financial planning and advice.

Regulatory Landscape

In the 2015 Budget, the Government of Ontario committed to eliminate the deficit by 2017-20183 and the current deficit is forecasted to be the lowest since the onset of the recession.4 As cooperative financial institutions, credit unions understand and support the importance of prudent financial management for ourselves, our members and the Government. The importance of prudent spending and cost effectiveness forms the foundation of our recommendations.

With the goals of Government in mind, we feel that it is not necessary or realistic to establish a separate government administered regulatory body for financial planners. Doing so would take a significant amount of resources and would not be in support of Government’s larger goal of reducing the provincial deficit. We feel that this recommendation aligns well with the Expert Committee’s Core Principle of “Regulatory Efficiency”.

It should be noted that we view the consultation on financial planning as just one piece of a larger discussion around consumer protection and the prudential regulation of financial institutions in Ontario. In 2015, the Ontario government, particularly through the Ministry of Finance, has gone to great lengths to emphasize the importance of consumer protection. This can be seen through the consultation process for the Credit Unions and Caisses Populaires Act (“CUCPA”), the mandate review of the Deposit Insurance Corporation of Ontario (“DICO”) and the Financial Services Commission of Ontario (“FSCO”), as well as a consultation on strengthening consumer protection and payday loans. Due to the interrelatedness of the various consultations, it may be worthwhile to defer any decision making on financial planning and advising regulation until after the mandate review of DICO and FSCO are complete.

Consumer Protection is Paramount

In January 2014, Leger, on behalf of the Financial Planning Coalition5, conducted a survey that found that 59 percent of Canadians felt that they did not have the necessary knowledge needed to properly plan their financial futures.6 This statistic shows the need and importance of financial planning and advising professionals as well as the reliance and trust placed in their hands by consumers. In the current unregulated environment, there is confusion over the variety of financial services professionals in the marketplace and what each does. Financial planners, advisors, investors, and coaches are just a few of the professionals available to assist consumers in managing their finances. The array of professional services available is concerning due to the lack of professional licensing across the board leaving consumers overwhelmed about who provides what services.

It should be noted though, that the vast majority of the risk resides in Ontario’s unregulated financial institutions. Banks and credit unions have policies in place, are required to be reasonably well capitalized and are guided by internationally recognized principles. Credit unions also believe that our member-ownership governance structure is the strongest form of consumer protection and we strive to continuously engage our members to ensure their financial institution is meeting their expectations. Each and every director, committee member, officer, or employee has an obligation under the Act to conduct the affairs of the credit union in the best interests of the members at large. It is also their responsibility to report awareness of any situation that might adversely affect the reputation of the credit union. When a credit union does not comply with the rules and regulations set out in the Act, FSCO or DICO may intervene.

As noted by the Auditor General, FSCO received no more than 35 credit union-related complaints annually between 2010 and 2014.7 By contrast, the Financial Consumer Agency of Canada received 695 complaints of federally regulated financial institutions.8

Furthermore, in the event that banks or insurance companies are exempt from a new regulatory framework for financial planning and advising, so to should credit unions, with the understanding that we must be on the same playing field as our competitors.

Codification of Standardized Designations

Credit unions see the standardization of certifications across the board as a way of ensuring that consumers are getting services from qualified professionals who are accountable for the decisions that they make. We do not see the creation of a new set of standards for Financial Planners by the Ministry of Finance as necessary when there is a professional certification process that currently exists. The Financial Planning Standards Council (“FPSC”) has been in existence for 20 years and is a member of the international parent organization, the Financial Planning Standards Board (“FPSB”). The FPSB has an international network of 150,000 individuals who have earned a CFP certification in 26 countries across the globe.9 Similarly, the FPSC has licensed over 22,000 financial planning professionals.10 This self-training and licensure model has been self-funded by those licensed professionals through their yearly dues and license renewals. Government endorsement of this strongly established and internationally recognized designation would provide title protection for those professionals certified under the CFP which in turn assists the public in identifying professionals and understanding what skills they possess.

Financial Planning vs. Financial Sales

Typically, financial planners have an advisory role with their clients. There are financial services professionals out there that do sell financial products to consumers; however, this is not within the scope of certified financial planning professionals in Canada.11 The Ontario Securities Commission has strong regulations around those who do investments in securities and stock markets for their clients, however there is not a strong sense of regulatory clarification around those who simply provide advice and recommend products. With the ambiguity around financial services offerings for consumers, action needs to be taken by the government to separate professional titles and their accompanying standards of care through regulation.

Professional Self-Regulation is Common in Ontario

Self-regulation has been utilized as a means to regulate some professions for decades. In Ontario, there are over 30 self regulatory professions including medicial professionals and lawyers just to name a few.12 Self-regulation is a means for the government to have a minimal role in the affairs of the professionals while still having arms-length regulatory oversight. There are a number of different models of self-regulation that include licensure, certification, registration, ethics codes and professional standards. The FPSC currently has all of the above aspects of self-regulation in place for certified financial planners. Those who are in the process of becoming a Certified Financial Planner are also held to the same standards and ethics code as those who are licensed. Taken directly from the FPSC Code of Ethics, “A strong Code is first and foremost about serving the public. It is the CFP professional’s pledge to his/her clients…The Code should assure clients that they are working with a professional who is committed to ethically, competently and diligently helping them achieve their life goals.”13

We believe that the government should maintain an arms-length regulatory role with regards to financial planning professionals by allowing the FPSC to have the authority to set the supervisory standards for its members as it sees fit with the ability of the government to rescind this power at any time. The financial planning profession has been self-regulating itself for decades and has done so successfully. Through first-hand knowledge within the profession, the FPSC is in a very strong position to understand what is necessary to protect the public interest.

Conflict of Interest and Disciplinary Action

With protection of the public as one of the foundational aspects of this financial planning review, it is important to address how conflicts of interest and disciplinary action towards financial planning professionals are currently handled. Under the FPSC’s Standards of Professional Responsibility, Certified Financial Planners (“CFP”) must provide clients with “A general summary of potential conflicts of interest between the client and the CFP professional, the CFP professional’s employer, or any affiliates or third parties, including, but not limited to, information about any familial, contractual or agency relationship of the CFP professional or the CFP professional’s employer that has a potential to materially affect the relationship with the client.”14 Additionally, “a CFP professional shall not provide services to a client where there is an existing conflict of interest between the CFP professional and the client; unless, after full written disclosure of the existing conflict of interest, the client makes the informed decision to engage the CFP professional notwithstanding the conflict.”15 Similarly, within the Standards of Professional Responsibility, the FPSC has circumstances within which a professional working towards a CFP designation or an already licensed CFP can be barred from remaining certified.

Cost(s) of Certification

While credit unions support the use of standardized certifications and professional titles, there is concern about how these standardized titles would be implemented. We note that there are significant costs associated with the certification process to become a CFP. We would be grateful to have more dialogue with the Ministry of Finance around what the implementation process would look like. For example, would there be a grandfathering process put in place? What types of equivalencies would be recognized towards the designation?

Conclusion

The regulation of the financial services profession is of high importance for consumers as well as the financial services industry. We wish the Committee success with its consultation and please do not hesitate to contact me if you have any questions.

Sincerely,

Don Wright
President and CEO
Central 1 Credit Union

 

1 Central 1 Economics.

2 Ibid.

3 Ontario Ministry of Finance. “Building Up Ontario – Ontario Budget 2015”, pg. xxvi, http://www.fin.gov.on.ca/en/budget/ontariobudgets/2015/papers_all.pdf

4 Ibid.

5 Since its inception in 2009, the Financial Planning Coalition consists of the Financial Planning Standards Council, Institut québécois de planification financière, Canadian Institute of Financial Planners and Institute of Advanced Financial Planners and has been working to get “provincial governments to recognize financial planning as a distinct profession whose members require specialized knowledge, skills and abilities”.

6 Financial Planning Coalition. “A Matter of Trust: Protecting Canadians’ Financial Futures”. Pg. 3, http://issuu.com/fpsc/docs/a_matter_of_trust.

7 Auditor General of Ontario. “Annual Report 2014.” Pg. 148, http://www.auditor.on.ca/en/reports_en/en14/2014AR_en_web.pdf.

8 Financial Consumer Agency of Canada. “Annual Report 2013-2014.” Pg. 43, http://www.fcac-acfc.gc.ca/Eng/about/planning/annualReports/Documents/FCACAnnualReport2014.pdf.

9 Financial Planning Standards Council. “About the CFP Designation.” http://www.fpsc.ca/about-cfp-mark.

10 Ibid, 7.

11 Financial Planning Standards Council. (January 2011). “Submission to the Investor Advisory Panel.” http://www.osc.gov.on.ca/documents/en/Investors/com_20110127_iap-fpsc.pdf.

12 Glen E. Randall. November 2000. “Understanding Professional Self-Regulation”. http://www.oavt.org/self_regulation/docs/about_selfreg_randall.pdf

13 Financial Planning Standards Council. (2015). “Standards of Professional Responsibility for CFP® Professionals and FPSC Level 1™ Certificants in Financial Planning.” Pg. 2, http://www.fpsc.ca/docs/default-source/FPSC/standards_of_professional_responsibility.pdf?sfvrsn=20.

14 Financial Planning Standards Council. (2015). “Standards of Professional Responsibility for CFP® Professionals and FPSC Level 1™ Certificants in Financial Planning.” Pg. 6, http://www.fpsc.ca/docs/default-source/FPSC/standards_of_professional_responsibility.pdf?sfvrsn=20.

15 Ibid.