: John J. De Goey - Submission

July 16, 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
email Fin.Adv.Pin@ontario.ca
Contact: Shameez Rabdi at {416) 325-3577 or Shameez.Rabdi@ontario.ca
Subject: Financial Planning/Advice Consultation

Let me begin by stating that what follows are my personal opinions and that those opinions have been neither censored nor endorsed by my employer- BBSL. I'm delighted that the Ontario Government is exploring taking a "more tailored approach" to regulating financial planning and attended both Roundtable sessions on the subject last year. I took careful notes in the process. There was some conflicting input since some presenters talked about financial planners specifically, while others talked about financial advisors more generally. In my view, cutting too broad a path would be dilutive. I believe a higher standard for financial planning in particular is the preferable route.

Last year, comments made by representatives from Advocis were helpful in demonstrating the overlapping 'Venn diagram' of advisors in general and of planners in particular. This is a simple functions and relations exercise. As with the example that all mothers or women, but not all women are mothers, it needs to be recognized in statute that while most Financial Planners are also advisors {licensees), most advisors are simultaneously not financial planners. The first thing that needs to be determined, therefore, is the scope and applicability of whatever regulations are enacted. With clarity of scope comes clarity of how people (both planners in particular and advisors in general) should be allowed to hold out to the general public. I have come to conclude that it would be best if we simply regulated financial planners and not all registrants I advisors. Perhaps only about 20% of all financial advisors in Ontario are Certified Financial Planners {CFPs) and a very small number (perhaps about 5%) of all CFPs are not licenced to sell products. The terms "planner" and "advisor" are treated as synonyms in some parts of the industry when, in fact, nothing could be further from the truth. The other related consideration is whether other designations (e.g. PFP, R.F.P.) should also be governed by the contemplated changes.

As a preamble to putting my thoughts forward, I would like to begin by stating that I support the proposal put forward by the Financial Planning Standards Council {FPSC) as the best framework available for a new legal framework that enshrines proficiency (knowledge, skills and abilities) while mitigating potential conflicts. I believe the FPSC is well-suited to act as a professional certification body for the financial planning industry- both in Ontario and -should the proposed legislation serve as a template for other provinces- for the rest of English Canada, as well. Ontarians need to have real trust in the people they hire in planning to achieve and maximize their financial well-being. The status quo is insufficient.

In my opinion, this should be set up in a manner that is akin to regulated health professions, with an independent body such as FPSC where the mandate is to oversee members of the profession in a manner that is not conflicted with advocacy on behalf of membership.

As it stands, there is a gap between what is promised and what is delivered at present. One example of this gap in both trust and proficiency is the proliferation of advisor designations. I once held the designations of TEP, R.F.P. and FSCI. I gave them all up because I felt they were confusing to the general public. The proliferation of "Alphabet Soup" designations is a consumer protection problem and I have personally decided that I wish to be 'part of the solution' by focusing on the one designation that I believe offers real value- CFP. Other (in my opinion lesser) designations exacerbate the problem. For instance, the PFP is widely seen as a lesser designation (with no international counterpart as a proficiency benchmark)and many people in the industry privately think that banks have endorsed it precisely because they doubt their planners could meet more rigorous CFP standards.

If the public interest is truly at stake, the proliferation of lesser standards has to stop. If it is too late to do that, the next best thing would be to strengthen, promote and ultimately recognize the best existing standards- in law. Possibly the best way to do this is to recognize a single, true and uniform standard. Fortuitously, we have that already in the Certified Financial Planner (CFP) mark. As such, I believe the new regulations should apply only to the approximately 8,800 CFPs currently practicing in Ontario. Since the impetus for this initiative is the dual mandate of consumer protection and the primacy of retirement income, there is a real risk to the public if less able people are allowed to hold out as being qualified.

Many organizations gave conflicting evidence when asked to present. For instance, the Investment Industry Association of Canada, Advocis and Investors Group (to name a few) all suggested that another Self-Regulatory Organization (SRO) would be redundant and unnecessary. Many of these same organizations acknowledged that the business of giving financial advice has evolved and that current regulation has not kept up. Specifically, nearly all regulations today are based on the placement of products while the industry is increasingly putting focus on value-added advice where products are just a means to an end. These same organizations that say the industry has evolved then go on to recommend that the disparate product-centric SROs be the ones to regulate planning, which by its very nature (and perhaps even by definition) is an advice-giving exercise. Furthermore, there are perhaps 1,000 or so CFPs in Ontario that do not hold a licence to sell a single product. Who will regulate them if regulation is to be done by existing SROs? Financial planning advice-giving, regulation and proficiency have nothing to do with product sales.

In Canada (Ontario), advisors are currently regulated based on what they sell rather than on what they do (provide financial advice and I or financial planning services). This compartmentalizes advisors and tends to funnel the advice they give along product-specific lines- regardless of whether that serves, or in fact harms, investors' interests. There is also an implicit restriction on an advisor's range of product offerings without any requirement that it meet a spectrum of client needs.

By way of example, on August 8, 2008, II ROC proposed a rule on financial planning http:/ /www.osc.gov.on.ca/en/Marketplaces_srr-iiroc_20080808_pro-fin-pla n-rule.jsp that contemplated basic proficiency and supervisory requirements for IIROC representatives who hold themselves out as financial planners. What if it had passed? Then, there would have been different financial planning obligations for people with identical designations based entirely on the secondary and unrelated question of what investment products those registrants were licenced to sell. Madness.

Fortuitously, in February of 2014, IIROC informed the Canadian Securities Administrators that it was withdrawing the proposed rule. During the public comment process, several commentators raised a number of differing concerns. One overarching view that emerged from the comments was that a more holistic approach to the regulation of financial planners would be preferable to the relatively limited measures being proposed by IIROC. Financial planning is too important to be left to 13 disparate provincial and territorial securities commissions and 2 industry self-regulators. In fact, according to York University's Alan Goldhar, many financial planning students quit on their dream of becoming planners because the industry has jobs for investment sales people, not for professional financial planners. Strong regulation would recognize the importance of planning as a pursuit of and by itself- and not as an adjunct to product sales or asset management.

The surest and clearest way to entrench financial planning as a value-added professional pursuit of and by itself is to make financial planning services tax deductible. Many people in the industry who have a planning designation are also registered as II ROC registrants working on an asset-based fee basis or as II ROC registrants who are Portfolio Managers (PMs)- a group that includes me. As a PM, my investment counselling fees are tax deductible under the Income Tax Act- Section 20 (1) (bb). As such, there's a tacit game going on in the business- one that IIROC member firms and their registrants tend to be complicit in. Firms and their registrants charge whatever the market will bear regarding investment counselling fees (tax deductible) and then give away financial planning as a loss-leader under the pretense of financial planning being a "related activity" to investment counselling. We can quibble about semantics all day long. There are certainly instances where planning and investing do, in fact, overlap. There are also instances where they do not.

My simple point is that doing one does not necessarily include doing the other. As a person who can provide both services, I find it to be most unfortunate that one activity is deemed to be worthy of a tax deduction while the other is not. Without playing favourites, I'd say they ought to be accorded similar status- either both or neither should involve a tax deduction. If the province of Ontario is genuinely serious about financial planning services being an important tool to combat financial illiteracy and to assist Ontarians in gaining financial independence in light of the inadequacies of the CPP, then financial planning ought to be accorded the same fiscal status as investment counselling. This would obviously require that Ontario offer provincial tax breaks for qualified financial planning services. The current discussion about whether or not the planning is offered on a fee basis is silly. What matters is the determination that the services being offered constitute genuine financial planning, not compensation.

I'd now like to turn my attention to the six specific questions that the Government of Ontario has sought input on. Those questions and my responses to them are what appear below.

  1. What activities are within the scope of financial planning? Financial Planning is a set of activities (whether performed on a modular basis or in an all-encompassing holistic basis) is the application of applied knowledge that follows a clearly-defined six-step process. These activities include: tax planning, estate planning, cash flow planning (budgeting) and investment planning.

    Is the provision of financial advice different from financial planning? If so, please explain the distinction. The two pursuits are related, but nonetheless decidedly different pursuits. Once again, this is a 'functions and relations' distinction. All planning is a form of advice; but not all advice is planning. Financial advice is often circumstantial and day to day; financial planning takes a long-term perspective with a more integrated approach and a greater emphasis on the sensitivity of potential outcomes.
  2. Is the current regulatory scheme governing those who engage in financial planning and/or the giving of financial advice adequate? It is not. The answers to question #4 will go into more detail, but the short answer is that the general public is at risk because there are essentially no rules today that govern who can and cannot call themselves a financial planner. That, coincidentally, is a big part of the problem and the confusion. Imagine if we were talking about doctors or lawyers (both are professionals governed by provincial statute). The regulatory regime for those more established professions is stronger, in part, because Ontarians are clear on who can call themselves a doctor or a lawyer and also on what they should reasonably expect if they were to retain the services of a doctor or a lawyer. The same is obviously not true for financial planners. Regulation for financial advice in general in laughably inconsistent. The overall proficiency and suitability standards for registrants (not necessarily financial planners) for insurance products are ridiculously low compared to the standards for IIROC registrants.
  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? To the greatest extent possible under the law (i.e. taking into account over a century of precedent), financial planners should be held to a fiduciary (best interests of the client) standard. If that is not possible due to case law precedent regarding the word "fiduciary" and how it is interpreted, then at a minimum, a "best interests" standard that recognizes the 5 principles of CFP "professional responsibility" standard ought to be adopted. As both a planner and an II ROC registrant, I attempted to self select being held to a fiduciary standard- i.e. to be held to a higher standard voluntarily - but I was precluded from doing so by my employer. I spoke with other firms and they would have done the same thing, so the experience I had was by no means unique to my employer. All true professionals (again, think of doctors and lawyers) are also fiduciaries. Once again, I feel compelled to make a 'functions and relations' distinction here. I believe that all qualified planners (CFPs) should be held to a fiduciary standard regarding their planning activity irrespective of whether they are licenced to sell products or not and irrespective of whether that licensure were to carry a fiduciary obligation down the road or not. All reasonable steps should be taken to rid the industry of advice being given with evident bias.
  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? I have already said that a full and proper SRO with an express mandate to govern financial planning in Ontario is required. All of the specific aspects of regulation that are itemized in the question can be performed relatively easily with a single SRO that has an express mandate to govern financial planning without any outside interference from competing mandates (e.g. securities regulation and associated account suitability, insurance sales and service). The most obvious need for separate regulation is in regard to titles policy. As it now stands, there's a 'wild west' mentality regarding financial planning titles, who can use them and what they actually mean to the general public. Greater clarity is urgently required.

    It is the organization that confers and oversees the designation that matters. The CFP is a more appropriate designation for consumer protection because of the organization behind it and that organization's mandate and expertise. The problem with PFP (as one example) is that it is conferred by a U.S. owned, publicly traded for profit education organization. As you know, professions are not overseen by for profit organizations and professional credentials that are matters of consumer protection should not come from for profit educational bodies, but instead from not-for-profit, public interest professional oversight bodies, like in every other profession.
  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. Ironically, my Code of Ethics as a CFP registrant precludes me from 'naming names' regarding inappropriate behaviour form CFP registrants. With that said, my sense (admittedly anecdotal) is that the primary culprits who are harming Ontarians are people who have either no planning expertise or lesser designations (i.e. other than a CFP) who are holding out as being something they are not- with the people engaging their services being none the wiser about the gaps in proficiency, ethics, disclosure and the like. As with Earl Jones who held out as being an IIROC registrant when he was nothing of the sort, so too, are there people who hold out as being qualified planners when they are nothing of the sort. Fuzzy nomenclature can do immeasurable harm to consumers if left unchecked on the grounds that a rogue participant in the marketplace is unlikely to appear and unlikely to do material harm even if she did. It is exponentially better to entrench strong and enforceable rules at the outset to remove all doubt.
  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? I do not see this as being a major benefit, but neither do I see it as doing any harm, either. A central registry of qualified and sanctioned planners is better than nothing, but my sense is that the very large majority of Ontarians would never consult it, anyway. Nonetheless, some would and, to the extent that working with charlatans can be avoided, I would support the initiative.

Once again, I want to thank you for undertaking this important and long-overdue initiative. If there is anything in my submission that is unclear or if there is any comment where more detail would be beneficial to the committee, please do not hesitate to ask me. I wish you the best of success and look forward to reading the final report whenever it is released.


John J. J. De Goey
R 416.255.9302