: Efficient Wealth Management Inc. - 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

Dear Expert Committee Members,

Efficient Wealth Management Inc. is an Advice for a Fee Financial Planning company in Mississauga, Ontario.  We are focused on helping clients from all walks of life and all levels of wealth, with their financial affairs.  Since, we focus on families with less than two million dollars in investable assets, both our target market and client base represent a very broad segment of the consumer market.  It is this group that most needs, access to professional, client focused, trust worthy services at affordable prices.  It is from this position of experience; we wish to comment on the questions before the committee.  It is our intent to answer as many of your questions as we can, but first we would like to make as many of those questions easier to answer.  When principles are absent, rules must be substituted.  We simply ask what questions are left if we are principled, not ruled.

Your committee was struck because the absence of a legal framework has raised questions about proficiency, quality standards and potential conflicts of interest among those providing financial planning, advices and services.  This requires investigating the merits of more tailored regulation of those engaged in financial planning and giving financial advice.  We distinguish Financial Advice from Investment Advice.

Our premise is simple.  The word advice is the issue, not the words financial or planning.

When I am purchasing something, anything, I do not want advice from the salesperson.  I may want features and benefits.  I may want to discuss price, terms and conditions.  I may wish to gather more data on usefulness or suitability to meet my requirement. I may desire quality and warranty assurances.   I am a willing participant in the sales strategy and the whole of sales process from beginning to closing should be considered to be just that, a well thought out strategy.  Outcomes are clear.  I am sure of what I possess, the strategy is closed and errors in acquisition are mine.
When I am seeking advice, about anything, I do not want a sales strategy.  I am seeking guidance or another view.  I may want information, an opinion or a suggestion.  I may wish to receive a recommendation as to an appropriate choice.  I may desire some background on the provider to evaluate capability of the individual.  I may seek credentials to judge knowledge and skills.  I may establish their profession to evaluate quality and standards of advice.  I am willing to trust and consider what is offered.  Outcome is the acceptance of trust; a dependency.  I must trust the advisor to act on his knowledge and experience, not mine.  What is received is helping me to decide whether I wish or need to enter a sales strategy.   Advice to enter should not come from within such strategy.

In a sales strategy, the outcome is the shared result for the participants in the strategy.   In the case of advice, for the outcome to be clear, positive and non harmful to the recipient, the outcome needs to be focused on the recipient of the advice.  Usefulness is only possible if the advice is trusted. 

The investment industry is chock full of participants of every imaginable kind.  All have different job or functional requirements, training is from none to exhaustive, education is from little to extensive and some provide services and some provide products.   Many are dealing with the public both experienced and not.  From a regulatory stance, the overwhelming majority have been cleared to conduct trades.  Put another way, they are licensed to buy and sell products and services to the investing public.  Most all in the industry are rendering advice from within a sales strategy.

In both of the above described situations competent and serious professionals work every day, among them CPAs, LLBs, CFAs, CFPs and etc.  By our definition, a professional is someone who becomes competent in their chosen field through education and training; maintains their skills through continuing professional development; and commits to behaving ethically.  Clarifying professional credentials, regulating the use of descriptive titles and legislation of the scope of advice proffered, certainly makes it easier to understand the level of proficiency or capability of the individual that you are dealing with, whether for obtaining advice or making a trade.  It is these principles that make a professional not which association they belong to.

Now consider your questions in a broad professional, fiduciary environment.

1. What activities are within the scope of financial planning?    

Financial planning is a task not a responsibility.  The community has many needs of a financial nature and the scope of need is very broad.  Financial planning is an organized forward looking comprehensive assessment of possible scenarios, some efficient and successful, some not.  Codifying all the possible items to be considered would prove impossible at the outset and be ever changing.  Principles would be more useful than a listing.  Many individuals in the investment industry have the capability of executing such assessments.  Capability is the only boundary relevant to purchasers of such services.  Education, training and ethical behaviour abound within the investment industry and the community and so clients should be able to engage any one of these persons to conduct such assessments.  The marketplace generally understands not to hire a gardener to paint their house.  Competence and capability are determinable before engaging the financial planning provider.

Is the provision of financial advice different from financial planning? If so, please explain the distinction.

Yes, very much so.  Advice encompasses the ideas of faith, trust and confidence that create a dependency when advice is rendered.  Planning encompasses only compilation, assembly and delivery without the acceptance of responsibility by the preparer.  However, financial planning may result in financial advice.  It is the provision of this advice portion that raises the bar.  As soon as a service is proffered as containing advice, the obligation inherent should be seen as offered and accepted and be deemed sufficient for the creation of a fiduciary relationship.   Advice creates a much higher responsibility to the recipient than planning or salesmanship.

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

Yes for Financial Planning.  No for Financial Advice.  Financial planning, done well, is broad reaching, comprehensive and difficult and like all important tasks would hopefully be conducted by competent individuals with adequate training, education and experience.  As a CPA, CA most of my work product is non-regulated and able to be performed by any individual that wants to hold themselves out as an accountant.  The use of the term Chartered Professional Accountant is reserved solely for those members of CPA Associations but anyone can call them self an Accountant.  Anyone can perform accounting tasks.  It is our demonstrated professionalism and the marketplace that will work out whom to engage for accounting and tax work.  Likewise anyone can do financial planning but Certified Financial Planners have demonstrated a commitment to education, training and ethics as expected from a professional.  Again this professionalism and the marketplace will work out whom to engage for the important task of financial planning.

For Financial Advice, there is no current regulatory scheme that captures and clarifies the responsibilities and obligations created by providing financial advice.  Regulations in the investment industry are concentrated on the conduct of trades.  The investment industry regulators require no offering of or the mechanism to accept the obligation to act in the best interest of the recipient of any advice, financial or investment.  The SROs that register members for trading activities currently do not allow the assumption of such responsibility.  Advice, whether it’s good, bad or poorly formed is evaluated only on a commercial basis and as to its suitability.

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?

Conflicts of interest are inherent and unavoidable in any sales strategy cycle.  This has been recognized before through the enactment and additions to The Consumer Protection Act (CPA) and related acts.  The purchase of investment products is not unlike that of purchasing any major consumer item.  The CPA is capable of protecting the rights of consumers with regard to financial planning services and many investment sales transactions.  Protection from misrepresentation, unfair practices and cooling off periods, as examples, when engaging in business with members of the investment industry would be useful and welcome.  The withdrawal of the exception provided under paragraph 2(2)(b) would be an immediate and effective solution.  

Financial advice should be clarified as an activity that gives rise to a relationship wherein one person has an obligation to act in another's interest ahead of their own interest.  The obligations accepted by an individual in whom another has placed the utmost trust and confidence to protect them.   This is often referred to as a fiduciary relationship.   Consumer protection enactment of this would be welcome.

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:

  1. Licensing and registration requirements;
    1. Financial Planning – None
    2. Financial Advice – Fiduciary capture at moment of advice
  2. Education, training and ethical responsibilities;
    1. Financial Planning – None
    2. Financial Advice – Fiduciary capture would encourage education, training and ethical practice as it does in other professions  
  3. Titles and designations of individuals who engage in financial planning and/or the giving of financial advice;
    1. Financial Planning – None
    2. Financial Advice – A Fiduciary responsibility should only be accepted from a professional that by definition is educated, trained and ethically bound in this area of practice.  CFPs can demonstrate this clearly, but many CFAs, CPAs and Lawyers etc. should be able to also accept this responsibility.

      Also, this question is best considered by what titles are missing.  Consumers would be best protected by proactive avoidance of misrepresentation from businesses and individuals. Members of MFDA, IIROC and Banks, should have a mandatory requirement to disclose that they are sales representatives of their respective organizations.  Titles that adequately convey this should be developed and implemented.  Consumers deal with salespersons satisfactorily in many other instances.  If those same representatives also want to provide advice, they should have mandatory capture under a fiduciary standard.  If they choose to provide only those services they are registered for, without advice, no additional disclosure is warranted, including compensation.
  4. Specific activities that should be included or excluded in a regulatory scheme;
    1. Financial Planning – Not limited but covered by consumer protection
    2. Financial Advice – Fiduciary capture
    3. Investment Advice – Non-Custodial – OSC registration of individuals to provide advice only, where custody remains with a registrant.  As advice, a fiduciary standard would also apply.
  5. Costs and other burdens of regulation;
    1. Financial Planning – None
    2. Financial Advice – Fiduciary Standard requires membership in existing professions.  No new costs.  Industry member firms would be forced to separate advice from sales and limit advice to those not demonstrated the ability to provide capture responsibility.
    3. Investment Advice – Non-Custodial – modification of existing regulations for Portfolio Managers.
  6. Regulation of compensation; and
    1. Financial Planning – None required – If Sales Representative, full disclosure as Sales Representative
    2. Financial Advice – Fiduciary Standard – Commissions not allowed.  Related to work performed
    3. Investment Advice – Non-Custodial – Commissions not allowed.  Related to work performed
    4. Regulated for Execution – Current rules sufficient or possibly reduced when full disclosure as Sales Representative is required.
  7. Complaints and discipline mechanisms.
    1. Financial Planning – Consumer protection
    2. Financial Advice – Fiduciary Standard – Existing Professional associations
    3. Investment Advice – Non-Custodial – OSC established practices
    4. Regulated for Execution – As exists

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.

  1. Financial Planning
    1. MFDA allows no remuneration for the preparation of financial plans.  All remuneration is for trading only.  Financial planning and advice are given away as part of the sales process.  Thus the value of planning is diminished when priced at zero and advice is delivered from within a sales process.  The increasing knocks on our door is our only direct evidence of the public’s dissatisfaction with this.
    2. due to MFDA position, much planning is being moved to activities regulated by FSCO.  The dual licensing aspect of this is confusing to the consumer.  This is leading to many consumers and even members of the industry, not engaged in planning, to believe Financial Planning is primarily about insurance.
    3. IIROC’s position that all financial planning leads to a trade is confusing the consumer into believing that financial planning is all about investing. 
  2. Financial Advice – is overwhelmingly rendered from within an ongoing sales strategy or process.  Financial advice should often be accessed to determine whether a purchase or sale is desired or necessary.  If already engaged in the sales process the proper advice will not be delivered.  It needs to proceed and be outside the process to be effective.  The evidence that many have purchased securities that are suitable to them as a class of individual but inappropriate based on their personal and highly individual circumstances would appear to abound.   However, our only support for the idea of the misappropriate acquisition of securities comes well after the fact, during our own planning.  Thus it is an observation without reliable evidence.  
  3. Investment Advice – Non-Custodial - Financial planning and advice is often incomplete without some discussion about the client’s investments.  Custody and/or control of assets are currently regulated and should remain so.  However, advice without custody or control should be regulated separately and differently.  It is a growing issue.  In Ontario currently, members of Group RRSPs, Defined Contribution Pension Plans and investors choosing Online Service Providers are unable to access, in practical ways, customized investment assistance consistent with their own personal financial plans. 

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?

  1. Financial Planning – No
  2. Financial Advice – Fiduciary Standard – Available - Professional associations have.
  3. Investment Advice – Non-Custodial – Available - OSC established practices
  4. Regulated for Execution – Established

Summary

Financial Planning is a consumer service that should be covered by existing consumer protection.  It is not the planning that is raising questions about proficiency, quality standards and potential conflicts of interest among those providing financial planning, advices and services.  It is the Financial Advice.  Certainly, financial planning often results in the delivery of financial advice.  Such advice by any individual or company should give rise to a fiduciary responsibility to the recipient of the advice.  Consumers have a right to expect that advice can be trusted and their interest has been considered ahead of the interest of the provider.  Furthermore, financial planning is failing to fulfill its expectation, since many clients’ financial concerns revolve around their investments and securities purchased to implement and manage their plans.  Financial planning currently cannot include advice on securities unless a registration to sell is present.  Thus financial planners are forced to choose between adopting a fiduciary stance or discard it to register to sell.  Financial advice providers should be able to register to provide advice on securities, when not in a position to trade.

Conclusions

Financial planning requires no regulation beyond normal consumer protections.  Titles for individuals providing financial planning require no modification or regulation.  However, Sales Representatives should be easily identifiable as such with mandatory disclosure of same.  Advisors that wish to proceed beyond the sales process and either advertises or proffers advice should be immediately captured with standards applicable to the provision of advice.

Financial advice should be regulated through a requirement to accept fiduciary responsibility for the advice and the individual should belong to a recognized professional organization that requires the same.  Such individuals have a professional responsibility to meet standards for the services they provide regardless of area of primary expertise.  Fiduciary responsibility would extend to the individuals employer or sponsor.  A CFP has clearly demonstrated professionalism in the area of financial planning, but a mechanism that could demonstrate the same about the commitment that other professionals have made should be considered.  We believe the marketplace with clarity will come to value the designation of Certified Financial Planner highly.  Mandating it as a prerequisite to providing advice is not necessary when professional responsibility and fiduciary capture is present.

Investment Advice should be possible without a registration that allows execution.  A separate registration for investment advice applicable to non custodial assets held at another registrant is much needed.  It is anticipated that many professionals that qualify to provide Financial Advice would extend the training and education to qualify to provide investment advice as well.

Thank you.

Gordon Stockman, CPA, CA, CFP, CIM
Vice President – Financial Planning
Efficient Wealth Management Inc.