: Kenmar Associates - Submission

Kenmar Associates

Investor Education and Protection

July 17, 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.Pln@ontario.ca

Contact: Shameez Rabdi at (416) 325-3577 or Shameez.Rabdi@ontario.ca

Subject Financial Planning/Advice Consultation

http://www.fin.gov.on.ca/en/consultations/rfp-consultation.html

http://www.fin.gov.on.ca/en/consultations/rfp.html

Kenmar Associates is an Ontario- based privately-funded organization focused on investment fund investor education via on-line research papers hosted at www.canadianfundwatch.com. Kenmar also publishes the Fund OBSERVER on a bi- weekly basis discussing investor protection issues primarily for investment fund investors. An affiliate, Kenmar Portfolio Analytics, assists, on a no-charge basis, abused investors and/or their counsel in filing investor complaints and restitution claims.

We are pleased to offer our comments on this important consultation.

Background ,Observations and Issues

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries … and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it. “ — Niccolo Machiavelli

In every province but Quebec, an advisor can call himself or herself a financial planner ( or advisor)– regardless of their level of knowledge, skill or accreditation.

Quebec is the only Canadian jurisdiction that regulates financial planning specifically. But really the two acts/ regulations of note are:

Regulation Respecting titles similar to the title of financial planner (bans similar terms)

http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php? type=3&file=/D_9_2/D9_2R20_A.HTM and fall under An Act respecting the distribution of financial products and services (see Division IV –starting at 56. http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php? type=2&file=/D_9_2/D9_2_A.html ) In addition to the Regulation Respecting the Pursuit

of Activities as a Representative, the Institut québécois de planification financière (the "IQPF") oversees the training of financial planners in that province, and requires that financial planners spend a minimum of 60 hours on professional development every two years. However, titles like Retirement Planning Specialist , Seniors Specialist and Wealth Advisor remain in use due perhaps, to limited enforcement resources. See APPENDIX 1 for a comparison with Ontario.

The investment regulatory environment consists of 13 disparate provincial and territorial securities commissions and 2 industry self-regulators. This is one key reason why it is so difficult to introduce harmonized standards across Canada.

There's also no shortage of entities laying a claim to financial planning. Today, there are roughly 17,000 active CFPs in Canada, which makes it the most popular financial-advice designation. The CFP is administered by a non-profit organization, the FPSC, which has a mandate to ensure Canadians are well-served by financial advice. The CSI, which started out as an offshoot of the agency that regulates the brokerage industry, has been a profit- making enterprise since 2002 and is now owned by U.S. based Moody's. The PFP is a designation that is held mainly by people in the banking industry. One estimate puts the number of Personal Financial Planner (PFP) designations in excess of 9000. Other designations include the RFP: The Registered Financial Planner is a much less common designation and CSWP: The Chartered Strategic Wealth Professional ,is a specialty designation for providers of advice to high-net-worth families and individuals. Figure 2.1 of Purse Strings Attached ( see REFERENCES ) lists over two dozen Designating Bodies in the Canadian Financial Services Industry .No wonder investors are confused.

Advice per se is not regulated.In Canada , “advisors” are regulated based on what they sell (specific products) rather than on what they do (provide financial advice referred to as making recommendations). This compartmentalizes advisors and tends to funnel the recommendations 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 while, at the same time, there is no obligation imposed on advisors to ensure those needs get met through appropriate referrals of clients elsewhere. As a result, Canadian financial consumers are exposed to “ You can have any color car, as long as it's black” as the basis for financial advice. The OSC 2004 Fair Dealing Model

attempted to address these issues but lack of industry/CSA support killed the project stillborn.

On August 8, 2008, the IIROC proposed a rule on financial planning http://www.osc.gov.on.ca/en/Marketplaces_srr-iiroc_20080808_pro-fin-plan-rule.jsp that contemplated basic proficiency and supervisory requirements for IIROC reps who hold themselves out as financial planners. In Feb. 2014 , the IIROC informed the Canadian Securities Administrators that it was withdrawing the proposed rule. During the public comment process, several commenters 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.

In Feb. 2014 a Sudbury MPP introduced a private member’s bill that, that if it passed, would tighten rules for financial advisors and establish a code of ethics for the industry. The legislation proposed by Rick Bartolucci would have created a separate Act regulating financial advisors, along with an “office of the director” to administer the Act. The proposal passed second reading but fell victim in May 2014 when Ontario Premier Wynne called an election. The director would have had the power to address complaints, inspect registrants, and complete investigations, Bartolucci’s proposal would have also required Financial advisors to be registered and advisors that breach the Act would face financial penalties or have their license revoked. It had been supported by lobbyist Advocis but not by FAIR Canada , SIPA or ourselves due to a lack of fiduciary duty.

There are no regulations that specifically cover financial planning in the United States. However, many activities that financial planners provide would overlap with the requirements

of the Investment Advisers Act of 1940. Advisers certified under this Act are fiduciaries.

In 2013 , India introduced legislation regarding financial planning that appears to be robust. This avenue should be explored further by the Committee.

For many “advisors”, financial planning has become a marketing tool, another promised service that will bring clients in the door so the advisor can sell mutual funds , Index- linked GIC's or insurance products like Segregated funds/annuities.

Canadian financial consumers of financial services and products are confused about their advisors' obligations to them. The industry is rife with an alphabet soup of titles that have no legal standing, designations that split according to industry sectors, and standards of proficiency that range widely.

“Part of the problem is that we advisors love to put letters beside our names and that is not consistent with what we see in other professions. This might make people feel good, but if there are no guidelines or restrictions on what they can use, it risks making all of the designations meaningless.” - Cary List, President of FPSC

http://www.advocis.ca/pdf/Forum/junjul2015/p10-12-Alphabet-soup-JUNE-JULY2015.pdf

The Ontario Securities Act has a clause that requires advisors under the Act's jurisdiction to deal "fairly, honestly and in good faith" with clients. One could interpret that phrase to be the statutory equivalent of a best-interests requirement or a "fiduciary" obligation. But the suitability requirements imposed by the MFDA and IIROC, which take their authority from the provincial securities regulators, have instead put the emphasis on making sure the product is "suitable" for the client at the time of the transaction, based on the advisor's knowledge of the client and the product. Recent amendments have extended

the suitability obligation to "triggering" events, but it is widely acknowledged that a suitable product is not necessarily the best product for the client

Kenmar Associates

Investor Education and Protection

Canadian financial services regulatory regimes vary by province and by sector. For example, an advisor may hold both a licence to sell mutual funds and a licence to sell insurance, putting the advisor under the jurisdiction of two regulators. This then opens the door to regulatory arbitrage including the disjointed resolution of disputes.

Because of the way many advisors are compensated by dealers, advisors find themselves in a conflict-of- interest when recommending a product. Take mutual funds, for example. The commission for selling a mutual fund is commonly embedded in the product and, unless the “advisor” forthrightly discloses to the client the amount he or she is being paid, the client may be none the wiser. Many clients believe they are not paying anything for the advice, or the product.This misunderstanding can prove costly.

A Small Investor Protection Association study Lack of Truth in Advertising ( see REFERENCES) found that marketing ads claiming a best interest standard are an outright deception. A similar report in the U.S. https://piaba.org/system/files/pdfs/PIABA

%20Conflicted%20Advice%20Report.pdf MAJOR INVESTOR LOSSES DUE TO CONFLICTED ADVICE: BROKERAGE INDUSTRY ADVERTISING CREATES THE ILLUSION OF A FIDUCIARY DUTY by the U.S. Public Investors Arbitration Bar Association (PIABA) of the advertising and arbitration stances of nine major brokerage firms – Merrill Lynch, Fidelity Investments, Ameriprise, Wells Fargo, Morgan Stanley, Allstate Financial, UBS, Berthel Fisher, and Charles Schwab – found that all nine advertise in a fashion that is designed to lull investors into the belief that they are being offered

the services of a fiduciary.

The OSC Investor Advisory Panel, of which I am a Member, recommends a statutory best-interests standard. It notes the changes it recommends pertain only to those who operate under the aegis of the CSA. "We urge other players, notably the federal government and banking and insurance regulators, to address these same challenges," it says in its comment letter to the OSC. Regulatory arbitrage is a serious issue when it comes to financial advice giving in Ontario and that is why we have suggested the FSCO be merged into the OSC. That would go a long way to solving many issues by utilizing common standards and principles.

Canada's highly fragmented financial services industry, have some “advisors” that are partialy regulated and others that are not regulated at all; there are myriad standards but no unified standard; each part of the industry jealously guards its own interests, creating a ripe environment for regulatory arbitrage and a race to the bottom. In this environment the best interests of the clients easily fall prey to the self interests of the “advisor “ and his/her dealer.

In an FP article entitled Financial planning is still about selling http://www.financialpost.com/personal-finance/wealthy-boomer/story.html? id=2b669450-6b4f-42b0-9e21-c0834ab0e299 York University's Alan Goldhar said

finance grads are often disillusioned by the true nature of the entry-level jobs they find in the industry. "It's like graduating from medical school and then being allowed only to

check temperatures and change bandaids." At York, 90% of those who enroll in financial planning don't take the advanced "Capstone" course, which includes real-life case studies. The reason they quit is "the industry has jobs for investment sales people, not for professional financial planners." The existing lack of structure leaves the financial consumer open for confusion and abuse and is a “dis-incentive” for anyone to spend the time to become a true professional as they have no way to distinguish themselves from those exhibiting good marketing skills with a title as opposed to good advisory skills.

Canadians face some serious challenges when it comes to financial knowledge. The Canadian Financial Capability Survey http://www23.statcan.gc.ca/imdb/p2SV.pl? Function=getSurvey&SDDS=5159 , conducted in 2009 and again last year, found some Canadians are still struggling.

For example:

  • Only 45 percent of Canadians have household budgets.
  • About 30 percent struggle to pay their bills.
  • 80 percent of young Canadians are not confident about their financial knowledge.
  • 60 percent of Canadians don’t know how much they’ll need to save to maintain their desired standard of living in retirement.

Canadians rely heavily on financial advice, and their expectation is that the advice is in their best interests. Receiving professional advice in their money matters is and should be as important as receiving professional advice in other key areas of their lives, such as medical and legal matters. The prevailing regulatory framework does not correspond to Canadians’ expectations or needs. Advice is not always in the client’s best interests. Nor do Canadians understand the compensation arrangements, or how they are or may be impacted by them. There is clearly a crying need for professional unbiased advice/financial planning.

It is interesting to observe how the U.K. Retail Distribution Review is playing out. There are some lessons learned here for Canada. 10 key takeaways from the FCA’s RDR review http://www.ftadviser.com/2014/12/16/regulation/rdr/key-takeaways-from-the-fca-s-rdr- review-4i9NuhStklWPAwSWnHoTWK/article.html

Abour the Consultation

It is our recommendation that the review approach the issues from the perspective of the financial consumer.We think this will help point the way to optimum solutions.

We also believe it would be instructive for the Expert Committee to contact the Office of the Public Guardian and Trustee of Ontario to learn first hand of the experiences of some Ontarions whose accounts have been brought under their cognizance. It is our understanding that only CFPs are interviewed and recruited for financial planning jobs at the Public Guardian & Trustee We suspect their database will demonstrate the sorry state of financial advice/ planning in Ontario they uncover when taking over an account.

Because fee- only planners /advisors may not know of this consultation or be too busy to file a written submission, we strongly recommend that the Committee reach out to this group. It would be instructive to understand their business models, Engagement letters,services provided, market assessment and key issues.

The sentence “ The Expert Committee will provide due consideration to the importance of the financial services industry in Ontario and to the concerns of market participants “ could be of concern. It must be understood at the outset that you can't make an omelet without braking some eggs. The entrenched positions of the “wealth management industry “, advisor associations and educators/trainers must be dealt with or progress will stall as it has in the past.

We are also concerned with this provision of the consultation : “ Please note that information submitted may be subject to disclosure under the Freedom of Information and Protection of Privacy Act. Please do not submit personal information or specific identifying details of individuals, companies or other entities unless the specific information is already publicly available. Please also note that the Expert Committee may make the submissions it receives publicly available. Please do not forward confidential information that you would not want to be made public. “ We believe the consultation must be fully transparent and all Comment letters should be posted as received.

Comments & Recommendations

We address the responses to the questions posed as follows:

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.

For the purposes of this consultation ,we use the definition of financial planning and financial planning provided by the FPSC . Financial Planning is the disciplined, multi-step process of assessing an individual’s current financial and personal circumstances against a future desired state and developing strategies that will help meet the individual’s personal goals, needs and priorities in a way that aims to optimize his or her financial position. Financial planning takes into account the interrelationships among relevant financial planning areas, which include financial management, insurance and risk management, investment planning, retirement planning, tax planning, estate planning and legal aspects, in formulating and re-evaluating financial strategies. A financial planner is an individual who possesses the requisite knowledge, skills, abilities and professional judgment to capably provide objective financial planning advice at the highest level of complexity required of the profession. They must agree to be accountable to a Regulator (or an approved professional oversight organization’s practice standards and Code of ethics ) standards that includes an obligation to put their clients’ interests before their own. We would need to do more research to confirm that this is equivalent to the Best interests standard .

Note that the Institute of Advanced Financial Planners have their own take on financial planning.http://www.iafp.ca/guide.php

There is an ISO Standard 222221 Personal financial planning -- Requirements for personal financial planners that documents what constitutes personal financial planning. http://www.iso.org/iso/catalogue_detail?csnumber=43033 that provides excellent definitions and criteria for financial planning.

NAPFA - The National Association of Personal Financial Advisors (U.S.) has prepared an informative educational video What is Comprehensive Financial Planning? This video features NAPFA National Chair Susan John discussing what comprehensive financial planning entails. She presents the elements of truly comprehensive planning and why consumers can benefit from it. http://www.napfa.org/community/EducationalVideos.asp

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 regulators look upon " Advisor" as a business title and not as a registration classification.

Financial advice involves an advisor turning planning strategies into specific actions and recommended investments/actions required to implement the financial plan. Depending on complexity, the planner may refer the client to a professional accountant to develop an efficient tax regime or a licensed insurance agent to acquire the necessary insurance coverage or an investment representative to recommend suitable investments /design a customized portfolio. In the case of insurance and investments, the advice given to clients is not required to be in their best interests or without any bias towards a specific firm or products- so it's CAVEAT EMPTOR Even if a client doesn't need an ongoing relationship with a financial planner or investment advisor, there are times he/she may have financial questions or just wants someone they trust to assure them that they’re on the right track. Services could also include debt-reduction strategies , saving for college, preparing tax returns to providing tailored advice say upon winning a lottery/ inheriting an estate or upon divorce. It should be noted that specialist firms exist to assist in debt counseling and money coaches for budgeting /expense control.

In the real world of course the clear dividing line between planning and advice is obscured. While it is true that some planning derived actions would be referred to professionals such as a lawyer drafting up a will , others like selling insurance or securities are implemented by the “planner” who may be licensed also as a representative to sell insurance products and securities. It is difficult to make a living solely as a planner especially given the reluctance of most financial consumers to pay for a plan after many years of having been told it is “free”. This has already led to many securities related relationships becoming fee-based .Another issue would be that enforcement under the Advisors ACT might be complicated ( and expensive) if investment dealers started calling planning something else thereby trying to circumvent the intent of the Advisor ACT. The actual regulation of advice giving does not currently exist. What exists is the regulation of the sale of products like insurance , segregated funds , investment funds, stocks and bonds. Canada doesn't have overall regulation of the advice that exists between the client and the dealer representative ( improperly referred to as “advisor” - see references WHITE PAPER ). What are needed are the adoption of a single, unified set of standards for financial planners /advisors and adopting a unified definition of what constitutes a financial planner ,a financial advisor and a financial plan. Ideally, the standards would apply to all financial advice givers not just “ Financial planners” .

We add parenthetically the sad fact that , notwithstanding the many positive benefits, fees paid by clients for tax planning, estate planning, and general financial planning are not deductible under paragraph 20(1)(bb) of the Federal income tax act. Ontario should encourage an amendment to the appropriate Acts to make financial planning tax deductible. Making financial planning fees and advice tax deductible will stimulate usage. Similarly, regulating planning would provide certitude regarding the deductibility of fees that are already being charged. If consumers were to see that the provision of financial planning services was deductible, it would both underscore the legitimacy of the activity as well as making it more affordable. Today, most people who want planning get it sporadically as a “loss leader” from people whose primary source of income is offering recommendations on regulated investment products/securities. This is not a desirable situation because of the obvious conflicts-of-interest and lack of monitored proficiency standards.

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

As outlined in our opening section, the current system is not working at all. It is neither adequate nor fair. Our quarterly Investor Protection in Canada reports vividly demonstrate the prevailing client abuses. A complete reform of the advice industry is required. We see far too many examples of ” advisors” selling unsuitable /expensive products, referring clients to Off book/ private investments, promoting client loans to leverage their portfolios, engaging in personal financial dealings and even becoming executors for clients or worse, obtaining Powers of Attorney and outright fraud. The

result is taking a heavy toll on Ontarions financial health and retirement income security.

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” -Upton Sinclair Scant attention has been paid to the rapid growth of the asset management industry - the shift from sales to “advice “ has occurred without corresponding changes in regulatory approach to investing. The status quo is unacceptable.

Regulators consider many of the titles that are commonly used within the financial advisory community as being of a generic nature. That is, they are non-specific enough that they, for the most part, escape regulation or regulatory enforcement. "Financial Planner" and "Financial Advisor" are two notable examples of a generic title. Because it seems anyone may use these titles, they convey little useful information to consumers and are a form of misrepresentation. The descriptor "Vice President" may be a meaningful adjective within the confines of various entities…or it may not. In actuality, some organizations are swollen with VPs whose real responsibilities are pretty watered down. Read our paper Business cards, titles and investor trust at https://www.blogger.com/blogger.g? blogID=4766585986003571384#editor/target=post;postID=979077171219272683;onP ublishedMenu=allposts;onClosedMenu=allposts;postNum=0;src=postname for more on this title deception.

Even those individuals that have competencies, designations and abilities are almost entirely compensated by the products they sell. As evidenced by robust academic research, compensation drives behaviour or as former GE CEO Jack Welch used to say “ What gets rewarded , gets done”.Investment dealers, insurance companies and banks have campaigns to sell specific products and compensate all their sales channels (including financial planners) to hit quotas. This is supplemented by other financial and non-financial incentives (and dis-incentives ) to drive sales. Such incentives overwhelm Codes of Conduct established by professional organizations. For an idea of just how pervasive these incentives are, read TD revamps advisor Pay Plan http://www.advisor.ca/news/industry-news/td-remodels-advisor-pay-plan-134278

With the shifting of market risk from intermediaries to end investors as corporations

move away from Defined Benefit pension plans ,retail financial consumers are exposed to more risks.

roducts from the insurance industry like Segregated funds compete with

mutual funds but are regulated differently and with a lighter touch. And the rapid rise of

the elderly and the retirees demographic necessitates a thoughtful strategic regulatory response. The aging of Canada’s population generates concern as older investors tend to be easier prey for brokers and salespersons who push suitability to the limit and beyond.

Basing regulations upon the assumption that investors have the ability to look out for themselves inherently means regulations are crafted for the smartest, most confident and experienced investors. This is wrong - regulation should look out for those most at risk of being taken advantage of. For this reason, a Best interests Standard should be the norm, not the exception for the so-called wealth management industry .This industry consists of firms in the banking, insurance and investment vertical silos each regulated differently in Ontario under different regimes.

The boundaries of the regulated securities industry are fuzzy with “advisors” selling insurance products, ( dual licenses/“regulatory arbitrage”) or indexed -linked GIC's, or mutual funds/stocks. The term “ financial advisor” is a broad, undefined title, but the term financial planner refers to a reasonably well-defined professional service but is unregulated.

While the financial planner title is not currently restricted outside the province of Quebec, it describes a group of individuals who have competencies with a reasonably well defined scope of knowledge, skills and abilities, and who hold themselves out as people who comply with high standards of professional ethics, conduct, practice and proficiency and are willing to be held accountable to those standards.

Seniors and retirees are a very specific issue. According to Statistics Canada, 15.7% of Canada's population is aged 65 and older as of July 1, 2014. Thirty years ago, that percentage was 10%. The trend will continue. Retirees typically have large accumulated assets and at the same time become more vulnerable with age. Retirees and seniors will not only need increased investor protection but the industry has to mobilize how to advise on the full spectrum of financial challenges that come with getting old – a shift away from traditional asset accumulation to distribution (“de-accumulation ') , tax optimization, insurance and estate planning. This will require a completely different skill set - professional planners . The current and emerging seniors issue demands that regulators move forward without undue delay. To make the shift, financial planners and advisors must be paid explicitly to provide trustworthy financial planning /advice, not collecting embedded commissions and giving away the advice for "free."

With a background of high Government and record high personal debt/income levels, reduced job security and threats to Medicare/CPP and the prospect of higher inflation, continued deterioration of personal savings /investments could lead to social disorder.

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?

For over a decade , we have recommended the Best interest standard for all financial advice givers. In early June, Kenmar submitted a Comment letter on the Ontario Securities Commission’s (OSC) Draft Priorities for 2015-2016). While we commended the OSC for its commitment to investor protection to date, we stressed that there is a real need for measurable progress with respect to some investor-focused regulatory priorities, in particular, action on the Best interest standard for advice givers. There are significant costs to inaction, and harmonization with other provinces should not be accomplished at the expense of investor protection for Ontarions. A statutory Best interest standard, one that addresses issues such as advisor proficiency ,titles and the conflicts-of-interest that permeate the relationship is of critical importance to protecting the investing public and protecting the financial health of Ontarians. [ one of the most illuminating discussions on Best interests is by CFA Andrew Teasdale Re http://www.osc.gov.on.ca/documents/en/Securities-Category3-Comments/com_20130219_33-403_teasdalea.pdf ]

A disproportionate percentage of suitability complaints originate with the sale of products or equities that are out of line with a client’s risk profile, goals and investment time horizon These fundamental issues cannot be resolved by increased investor financial literacy . Likewise, better and more disclosure alone will not address the serious, systemic issues that have been identified –inadequate advisor proficiency, conflicts-of- interest, the low suitability standard for advice, lack of effective price competition and regulatory arbitrage.

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:

Licensing and registration requirements;Education, training and ethical responsibilities;Titles and designations of individuals who engage in financial

planning and/or the giving of financial advice; Specific activities that should be

included or excluded in a regulatory scheme; Costs and other burdens of regulation; Regulation of compensation; and Complaints and discipline mechanisms.

Since we regard financial planners as professionals , we expect that education, ethical conduct and designations should be regulated. The educational curriculum would be prepared and maintained or approved by the regulator. It would be tailored to the Ontario legal/tax environment.

Compensation must be regulated. To the extent that advisors and planners are compensated by persons other than their clients, there will be a conflict- of- interest. It is true that he who pays the piper calls the tune, and if an advisor is compensated, wholly or partially, otherwise than by the client, other interests will come into play in the recommendations of the advisor. However, clients should only have to pay for services received. Advisors should not be permitted to simply charge an annual fee, based on the size of a client’s portfolio to cover advisory services. Such a fee would be nothing more than a direct substitute for embedded commissions or similar charges that are not clearly and directly related to the provision of a service.

Any time a financial advisor is paid up front for what should be a long-term client relationship, it puts too much pressure on the up front sale, and reduces the incentive for the advisor to spend a lot of time with the client after the initial sale. In the investment industry, this can be seen by those that sell mutual funds with a deferred sales charge or DSC. Unfortunately, the entire insurance industry is based primarily on paying advisors up front, and very little ongoing. While there may be less need for significant ongoing service on insurance, the current compensation structure is why most people almost never hear from their insurance broker for years after a sale is complete.

There are growing problems with the complaint handling services available to financial consumers. OBSI can only make non-binding recommendations regarding compensation for losses. There is a growing trend of rejection of OBSI recommendations. A separate unregulated Ombuds service is used for insurance products . There is also some indication that investment dealers who receive a recommendation to compensate proceed to negotiate with the investor to reduce the size of the award (“ low-balling”). There needs to be an independent body that can make binding, enforceable decisions.

Nor can OBSI deal with systemic issues. Where such issues exist, there is no mechanism for informing other affected investors of the problem. We recommend that a complaint handling system be integral to the discussion of a go-forward plan on advice giving.

How would regulated advisors protect financial consumers? The Professional Engineers of Ontario process might be an appropriate benchmark here. [ How we Protect the Public http://www.peo.on.ca/index.php/ci_id/1801/la_id/1.htm ]

It is critically important to note that the impact of compensation structures on the quality and integrity of financial plans (and adherence to them) is much greater than proficiency, professionalism, and other factors. The broader environmental problem is that financial consumers are not being provided with real financial planning advice by those who are also registrants or licensed and are instead often being sold products under a lowly suitability standard. We recommend that only those financial planning providers who (a) offer financial planning on a fee-for-service basis ; (b) meet the required proficiency

(and who have been granted a certificate ,degree or license from a recognized authority with documented practice /conduct standards) (c) operate under a fiduciary standard and (d) provide access to OBSI in the event of a dispute , should be permitted to hold themselves out as providing financial planning. In addition , controls must be in place to protect the privacy of client personal information. Clear disclosure and transparency regarding fees would be required as would prohibitions on conflicts-of-interest.

Most insurance sales illustrations demonstrate products over the life of the client but these are sales illustrations to sell the merits of a product, not holistic robust planning advice. It is hard for clients to tell the difference - the “projection” comes across as a plan. While fee disclosure has improved in the investment sector, the insurance sector

has lagged far behind .In any event, research has shown that disclosure has limited value in consumer protection especially when an asymmetrical knowledge base exists. It may

even be counter productive.

A proposed Advisors ACT should restrict the term “financial advisor” and require people to only use titles that relate to their competency – so only those who are qualified (and subject to professional oversight) could be called Financial Planners, only those licenses by SRO/FSCO could call themselves X salespeople, Investment Advisors. The “Financial Planner” designation should restrict salespersons from creating variations that confuse the public and obfuscate the truth.

The issue of regulation is tricky. Here are some suggested criteria for such a regulator : Should be a not-for-profit with a public interest mandate

Should be free standing and independent

Should be free of conflicts-of-interest

Should have a governance structure compliant with the ACT Should have an acceptable Code of Conduct

Should have a curriculum compliant with ISO standard 222221 or equivalent

Should have a trusted exam giving structure

Should require a fiduciary/Best interests duty of its members

Should have a public consultation process

Should have a robust enforcement and censuring arm

Should be legally capable of dealing with non-members if membership is a criterion

Should be able to fine offenders and/or remove their right to use the designation

Should have an accessible , fair, responsive complaint handling process and access to a process for restitution

Should manage and protect the profession of financial planning /advice and the designation (s) [applicable terms TBD]

There is much resistance to the introduction of yet another regulator so it will require some imagination and innovation to implement the recommendations we have proposed. Financial Planners are also advisors (licensees), most advisors are simultaneously not financial planners. Therefore, the first thing that needs to be determined 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 themselves out to the general public. The end goal is to constrrain titles and enable

Canadian's access to trusted, affordable planning and advice.

It is our firm conviction that ALL people holding themselves as financial advice givers should work to a Best interests standard including those regulated by IIROC and the MFDA. Others should be referred to as “ salesperson” or similar title that differentiates them from the true professionals. Caveat Emptor has no place in a relationship as important to Canadians as their relationship with their financial advisor or planner. The standard should be the same as for doctors and lawyers, namely a fiduciary standard, one that requires the advisor to always act in the client’s best interest.

The issues in passing a Advisor ACT are many and varied. All of the existing advisor associations have a conflict-of-interest in that they have unique standards and processes which may be adequate but different. There is a question in our mind as to just how many financial planners would meet the criteria of being fee-only/planning-only and free of conflicts -of-interest . We are told it is far less than 5%.Those working for dealers

,according to our criteria ,would be classified as non-professional since they generally work under a commission or commission- like structure. Would any existing advisor

association be capable of being (and be ) accepted as a regulator? Would financial services regulators and SRO's be required to enforce the ACT on their registrants? What , if any, are the unintended consequences of the introduction of an Advisor ACT? Would the cost of regulation be excessive for the small number of legitimate participants? Does the Quebec model offer any useful clues for the design of an Ontario regulator of financial planners?

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.

The current modus operandi centers on transactional compensation which incentivizes the sale of products. The current system does not serve high integrity financial planners/advisors or clients well and retards the emergence of a true financial

planning /advice profession. A transaction-based process based on suitability does not yield solutions that are in the best interests of clients. When financial planners assist with “implementing” the financial plan through the purchase of investment products, purchase of life insurance, or referrals to lawyers for the execution of a will or POA the potential for serious conflicts-of-interest arises. Compensation structures resulting from these

activities may call into question the objectivity or appropriateness of the financial plan itself. The recently released Brondesbury study on Fund Fees ( see REFERENCES) is just

one more piece of evidence to justify regulatory reforms without undue delay.

A comprehensive review of the harm done to investors in the current environment is provided by a research report by the RAND corporation. Impact of conflicts of interest in the financial services industry. http://www.rand.org/content/dam/rand/pubs/working_papers/WR1000/WR1076/RAND_WR1076.pdf

Morningstar's Global Fund Investor Experience Study (June 2015)

http://corporate.morningstar.com/US/documents/2015%20Global%20Fund%20Investor

%20Experience.pdf stated “ For Fees and Expenses, the highest-scoring country (that is, the country with the lowest costs) is the U.S., a position held since the start of this study in 2009 and reflective of the scale of this market and, as discussed later, sales practices. Australia and the Netherlands join the U.S. with an A grade. Among the lowest-scoring markets are Canada and China, which, while not the most expensive in all categories, do not have any category where fees are at an average or better level.” Canada had the lowest rating with a D-. Fees of course are high due to embedded trailer commissions paid to dealers for providing “advice”.

As noted by PIAC in Holding The Purse Strings: Regulating Financial Planners ( see

REFERENCES) : “For most Canadians, their experience with the financial planning industry does not involve actual financial planning at all. What it does include is a

meeting with an individual who has a title that leads consumers to believe they are

receiving financial planning advice. However, in reality consumers are dealing with financial salesperson who is employed by organizations to solicit a specific product or series of products. While it was noted previously that anyone can call themselves a

financial planner in Canada, the notion that most individuals in the financial planning industry are merely salespeople is so prevalent that even most financial planning students don’t bother completing the Certified Financial Planner designation. “

A number of the Referenced papers included with this submission further demonstrate that skewed advice results when advice is provided under a transaction-based system rooted in the suitability standard and a commission-based culture.

In Why Don’t Most Financial Planners Plan Finances? http://www.milliondollarjourney.com/why-don%E2%80%99t-most-financial-planners- plan-finances.htm we're told ” ..While many financial planners claim to do financial planning and provide holistic advice, very few actually provide comprehensive planning with written financial plans, as taught in the CFP courses. The issue is best highlighted by Alan Goldhar, Professor of Financial Planning at York University and Manager for the Ontario Public Trustee. The Public Trustee takes over the finances for people that are mentally unable to make financial decisions. They have taken over more than $500

million in investments for 10,000 clients, most of which had a financial planner, broker or bank advisor. They interview the client and the family and then send in a team to obtain all financial documents. The shocking fact is that, of the 10,000 clients they took over, none had a financial plan! Not one!..” This is an alarming statistic.

Our own experience in dealing with financial consumers is revealing. Over the past 15 years we have participated in over 250 complaints from retail financial consumers. In only 5 of these cases did we actually see a document entitled Financial plan. In fact though ,the document was not a true financial plan -it was just used as a vehicle for selling expensive mutual funds and other securities to unsuspecting clients. Not one had an Engagement Agreement or Investment Policy Statement, a critical tool used by professional financial advisors. There is little in the way of “reviews” or monitoring as there is no money to be made unless product sales are involved. This type of advisory system does not serve Main Street well.

More generally, we can conclude that the KYC- suitability system is mismanaged / broken and the prevailing Risk Profiling process superficial. It may well be that improved fee disclosure and personalized performance reporting coming in 2016 as a result of CRM2 will open the eyes of complacent and trusting Ontario investors . It is then that the full nature of the abuse will become apparent and break out into the public domain. This could have the positive effect of showing consumers that if they spend a little money for unbiased financial advice on the front end, they might save themselves a lot of time and trouble trying to fix a problem on the back end.

The tales of investor abuse are as diverse as the investment universe itself: ill- conceived get-rich strategies, unsuitable investments, Off book sales, expensive products, churning of accounts, tax blunders, excessive fees/reverse churning , unnecessary leveraging , outright fraud and so on. Conflicts-of-interest also give rise to inaction – not advising clients to cut down debt instead of investing more , with-holding

information on lower cost products like ETF's and failing to disclose the tax ramifications of certain products/transactions. This is further supported by an abusive dealer complaint handling system and an OBSI which faces tremendous industry resistance. Add to that a mountain of research that indicates Canadians lack financial literacy and numeracy, are financially naive /trusting and ill-prepared for retirement and you have the perfect storm for a major fiasco .

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?

A registry containing registration details, experience and disciplinary record is required. Such a registry is key in order for consumers when selecting an advisor or planner. The online system must be user-friendly, “intelligent” , searchable, accurate , current and complete.

If such a system had existed ,perhaps the damage caused by unregistered financial planner Earl Jones would have been avoided or minimized. Bertram Earl Jones pleaded guilty to running a Ponzi scheme which CBC News has reported cost his victims "a conservative estimate of about C$51.3 million taken between 1982 and 2009”. .After pleading guilty to two charges of fraud in 2010, he was sentenced to 11 years in prison. After serving only 4 years of his sentence, Jones was released on March 20, 2014.. After a lengthy , exhausting and costly litigation , estimates are that victims received about 45 cents on the dollar back. Many lives were forever altered as a result of this rattling experience.

SUMMATION

Given changes in the United Kingdom and Australia, Canada is clearly falling behind and targeted changes are needed. The use of titles should be regulated, and educational and proficiency requirements should be standardized, so that financial consumers know that persons calling themselves financial planners or advisors meet rigorous standards of proficiency, process and conduct. The goal of the proposed regulation (an “ACT” ) should be to define a clear channel of professional financial advice that a client can rely upon as being in their best interest. Robust enforcement of the Act by the designated regulator will be a key success factor.

Because of some open questions, we recommend that a well structured Roundtable be convened with all stakeholders to discuss the possible approaches , benefits and costs of regulating financial planners as a subset of all financial advisors. A Representative from Quebec should be invited to provide their perspective and the results of their regulation of planners. There is no doubt a concern that this could lead to another layer of regulation with marginal benefits to financial consumers.

Past attempts at change have ended in failure or only baby steps forward. A failure this

time could set back regulatory reforms another decade. Way back in 2001 ,Multi-lateral Instrument MI 33-107 https://www.osc.gov.on.ca/documents/en/Securities- Category0/rule_20010216_proficiency.pdf seemed set to go despite heavy lobbying by various stakeholders, never to be heard from again.

So it was with the Ontario Securities Commission's FAIR DEALING MODEL (FDM) in

2004.We can only assume that MI33-107 and the FDM fell into the proverbial black hole of politics and lobbying activities.

We are of a firm conviction that there is a critically important role for professional financial planning/advice in Ontario and indeed in Canada. To make this happen, the Ontario Government must exhibit a stiff backbone to deal with this critical socio- economic issue. The lobbyists must be held at bay.

“History shows that where ethics and economics come in conflict , victory is always with economics. Vested interests have never been known to have willingly divested themselves unless there was sufficient force to compel them . “ - B.R. Ambedcar, Indian poitician and founder of the Indian Constitution

Ontario must also address the tax deductability/credit issue. The cost to Ontario of this tax change could be offset because better advised Ontarions will have more taxable wealth, there will be less of a demand on social benefit programs and public health care expenditures should decline as fewer people are stressed out due to poor/no financial plans and/or conflicted advice.

Kenmar Associates agree to public posting of this Comment Letter. Public posting is necessary so that commenters can assess the views of others and provide the necessary transparency so critical to the success of these types of consultation.

We thank this Expert Committee for the plain language manner in which these questions were posed for public comment.

We would be pleased to discuss our comments and recommendations with you in more detail at your convenience.

Sincerely,

Ken Kivenko P.Eng.

President, Kenmar Associates kenkiv@gmail.com

APPENDIX 1 Comparison of Oversight of Financial Planning ( Que. vs. Ontario)

Thanks to FPSC for this Chart

Comparison of Oversight of Financial Planning

 

Ontario Current

Quebec Current

Ontario Coalition Proposal

Restriction over title “Financial Planner”

No restriction over the use of the title “financial planner” or “financial advisor”.

The CERTIFIED FINANCIAL PLANNER® (CFP®) designation is restricted to those who have met standards set by the Financial Planning Standards Council (FPSC).

Financial Planner title is restricted and titles similar including financial adviser. http://www2.publicationsd uquebec.gouv.qc.ca/dynam icSearch/telecharge.php? type=3&file=/D_9_2/D9_

2R20_A.HTM

http://www2.publicationsd uquebec.gouv.qc.ca/dynam icSearch/telecharge.php? type=2&file=/D_9_2/D9_

2_A.html

Proposal would restrict individuals holding out and using the title “financial planner” to those who have met the standards as defined by the professional oversight body, consistent with the Canadian Financial Planning Standards and Definitions, a joint publication of FPSC

and IQPF.

 

No restriction over the use of the title “financial planner” or “financial advisor”.

The CERTIFIED FINANCIAL PLANNER® (CFP®) designation is restricted to those who have met standards set by the Financial Planning Standards Council (FPSC).

Financial Planner title is restricted and titles similar including financial adviser. http://www2.publicationsd uquebec.gouv.qc.ca/dynam icSearch/telecharge.php? type=3&file=/D_9_2/D9_

2R20_A.HTM

http://www2.publicationsd uquebec.gouv.qc.ca/dynam icSearch/telecharge.php? type=2&file=/D_9_2/D9_

2_A.html

Proposal would restrict individuals holding out and using the title “financial planner” to those who have met the standards as defined by the professional oversight body, consistent with the Canadian Financial Planning Standards and Definitions, a joint publication of FPSC

and IQPF.

   

Financial Planner title is restricted and titles similar including financial adviser. http://www2.publicationsd uquebec.gouv.qc.ca/dynam icSearch/telecharge.php? type=3&file=/D_9_2/D9_

2R20_A.HTM

http://www2.publicationsd uquebec.gouv.qc.ca/dynam icSearch/telecharge.php? type=2&file=/D_9_2/D9_

2_A.html

 

Financial Planners require a license/ certification

None unless the individual has pursued certification.

In order to hold out as a CFP or Certified Financial Planner, one must be

licensed annually by FPSC.

Over 9,200 individuals in Ontario hold the CFP designation (17,000+ across Canada).

Yes. Pl.Fin granted by The Institut québécois de planification financière (IQPF)) and have the appropriate certificate issued by the AMF or be authorized to use the title by

a professional order who has an agreement with the AMF.

Yes. Individuals wishing to hold out as a “financial planner” must be a member in good standing of the professional oversight body, as CFPs are today.

 

None unless the individual has pursued certification.

In order to hold out as a CFP or Certified Financial Planner, one must be

licensed annually by FPSC.

Over 9,200 individuals in Ontario hold the CFP designation (17,000+ across Canada).

Yes. Pl.Fin granted by The Institut québécois de planification financière (IQPF)) and have the appropriate certificate issued by the AMF or be authorized to use the title by

a professional order who has an agreement with the AMF.

Yes. Individuals wishing to hold out as a “financial planner” must be a member in good standing of the professional oversight body, as CFPs are today.

 

None unless the individual has pursued certification.

In order to hold out as a CFP or Certified Financial Planner, one must be

licensed annually by FPSC.

Over 9,200 individuals in Ontario hold the CFP designation (17,000+ across Canada).

Yes. Pl.Fin granted by The Institut québécois de planification financière (IQPF)) and have the appropriate certificate issued by the AMF or be authorized to use the title by

a professional order who has an agreement with the AMF.

 
 

None unless the individual has pursued certification.

In order to hold out as a CFP or Certified Financial Planner, one must be

licensed annually by FPSC.

Over 9,200 individuals in Ontario hold the CFP designation (17,000+ across Canada).

   

Enforcement of conduct

None unless the individual is certified. Individuals who hold mutual funds or securities licenses are subject to supervision by existing regulators for conduct related to their licensure.

Done through the AMF and/or the Securities Chamber.

Enforcement of professionals would be done by the professional oversight body, as CFPs are overseen by FPSC today. Foundation would be FPSC’s

enforcement system which has been significantly

 

None unless the individual is certified. Individuals who hold mutual funds or securities licenses are subject to supervision by existing regulators for conduct related to their licensure.

Done through the AMF and/or the Securities Chamber.

Enforcement of professionals would be done by the professional oversight body, as CFPs are overseen by FPSC today. Foundation would be FPSC’s

enforcement system which has been significantly

 

None unless the individual is certified. Individuals who hold mutual funds or securities licenses are subject to supervision by existing regulators for conduct related to their licensure.

 

Enforcement of professionals would be done by the professional oversight body, as CFPs are overseen by FPSC today. Foundation would be FPSC’s

enforcement system which has been significantly

 

CFP professionals are subject to FPSC’s disciplinary review and enforcement processes and held to a best interest standard.

 

revamped in the last 12 months to mirror “best in class” processes.

 

CFP professionals are subject to FPSC’s disciplinary review and enforcement processes and held to a best interest standard.

   

Education requirements

None unless the individual is certified.

FPSC requires CFP professionals to meet the following requirements:

1)Completion of an FPSC- approved core curriculum (provided by one of over 30 education partners), generally

18 months to 3 years of study

2) Completion of an FPSC- approved Capstone Course

3) Three years relevant

experience as reviewed and accepted by FPSC

Some of these requirements may be waved dependant on approved credentials as determined by FPSC.

1) Academic Training or equivalency

2) IQPF Professional Training

Course

http://www.iqpf.org/futuretudian t.en.html

As determined by the professional oversight body. Propose the same as FPSC’s current requirements.

 

None unless the individual is certified.

FPSC requires CFP professionals to meet the following requirements:

1)Completion of an FPSC- approved core curriculum (provided by one of over 30 education partners), generally

18 months to 3 years of study

2) Completion of an FPSC- approved Capstone Course

3) Three years relevant

experience as reviewed and accepted by FPSC

Some of these requirements may be waved dependant on approved credentials as determined by FPSC.

1) Academic Training or equivalency

2) IQPF Professional Training

Course

http://www.iqpf.org/futuretudian t.en.html

As determined by the professional oversight body. Propose the same as FPSC’s current requirements.

 

None unless the individual is certified.

FPSC requires CFP professionals to meet the following requirements:

1)Completion of an FPSC- approved core curriculum (provided by one of over 30 education partners), generally

18 months to 3 years of study

2) Completion of an FPSC- approved Capstone Course

3) Three years relevant

experience as reviewed and accepted by FPSC

Some of these requirements may be waved dependant on approved credentials as determined by FPSC.

1) Academic Training or equivalency

2) IQPF Professional Training

Course

http://www.iqpf.org/futuretudian t.en.html

 
 

None unless the individual is certified.

FPSC requires CFP professionals to meet the following requirements:

1)Completion of an FPSC- approved core curriculum (provided by one of over 30 education partners), generally

18 months to 3 years of study

2) Completion of an FPSC- approved Capstone Course

3) Three years relevant

experience as reviewed and accepted by FPSC

Some of these requirements may be waved dependant on approved credentials as determined by FPSC.

   

Examinations

None unless the individual is certified.

FPSC establishes the examination requirements and sets the examinations for CFP and FPSC Level One certificants. FPSC administers two examinations (Level One and CFP), offered twice a year in both official languages. Candidates must pass each level before proceeding in the program. Less than 50% of candidates are successful on both exams on first attempt.

Similar to FPSC, established and administered by IQPF.

As determined by the professional oversight body. Propose similar to FPSC’s and/or IQPF’s requirements.

 

None unless the individual is certified.

FPSC establishes the examination requirements and sets the examinations for CFP and FPSC Level One certificants. FPSC administers two examinations (Level One and CFP), offered twice a year in both official languages. Candidates must pass each level before proceeding in the program. Less than 50% of candidates are successful on both exams on first attempt.

Similar to FPSC, established and administered by IQPF.

As determined by the professional oversight body. Propose similar to FPSC’s and/or IQPF’s requirements.

 

None unless the individual is certified.

FPSC establishes the examination requirements and sets the examinations for CFP and FPSC Level One certificants. FPSC administers two examinations (Level One and CFP), offered twice a year in both official languages. Candidates must pass each level before proceeding in the program. Less than 50% of candidates are successful on both exams on first attempt.

 

As determined by the professional oversight body. Propose similar to FPSC’s and/or IQPF’s requirements.

 

None unless the individual is certified.

FPSC establishes the examination requirements and sets the examinations for CFP and FPSC Level One certificants. FPSC administers two examinations (Level One and CFP), offered twice a year in both official languages. Candidates must pass each level before proceeding in the program. Less than 50% of candidates are successful on both exams on first attempt.

   

Continuing

Education

None unless the individual is certified.

CFP professionals are required to complete 25 hours of continuing education annually, including at least one hour of ethics. Continuing education is approved by FPSC.

IQPF is responsible for the training and education of financial planners.

40 hours over two years. http://www.iqpf.org/formation/e xigences-de-formation.en.html

As determined by the professional oversight body. Should incorporate FPSC’s requirement of 25 hours.

 

None unless the individual is certified.

CFP professionals are required to complete 25 hours of continuing education annually, including at least one hour of ethics. Continuing education is approved by FPSC.

IQPF is responsible for the training and education of financial planners.

40 hours over two years. http://www.iqpf.org/formation/e xigences-de-formation.en.html

As determined by the professional oversight body. Should incorporate FPSC’s requirement of 25 hours.

 

None unless the individual is certified.

CFP professionals are required to complete 25 hours of continuing education annually, including at least one hour of ethics. Continuing education is approved by FPSC.

IQPF is responsible for the training and education of financial planners.

40 hours over two years. http://www.iqpf.org/formation/e xigences-de-formation.en.html

 
 

None unless the individual is certified.

CFP professionals are required to complete 25 hours of continuing education annually, including at least one hour of ethics. Continuing education is approved by FPSC.

   

REFERENCES AND INDEPENDENT RESEARCH

The Costs and Benefits of Financial Advice http://www.hbs.edu/faculty/conferences/2013-household-behavior-risky-asset- mkts/Documents/Costs-and-Benefits-of-Financial-Advice_Foerster-Linnainmaa-Melzer- Previtero.pdf

Stephen Foerster, Juhani Linnainmaa, Brian Melzer Alessandro Previtero ,March 8, 2014

Abstract :We assess the value that financial advisors provide to clients using a unique panel dataset on the Canadian financial advisory industry. We find that advisors influence investors’ trading choices, but they do not add value through their investment

recommendations when judged relative to passive investment benchmarks. The value- weighted client portfolio lags passive benchmarks by more than 2.5% per year net of fees, and even the best performing advisors fail to produce returns that reliably cover their fees. We show that differences in clients’ financial knowledge cannot account for the cross-sectional variation in fees, which implies that lack of financial sophistication is not the driving force behind the high fees. Advisors do, however,influence client savings behavior, risky asset holdings, and trading activity, which suggests that benefits related to financial planning may account for investors’ willingness to accept high fees on investment advice.

Lower-producing advisors under fire [ at TD Wealth PIA]-IE Mid November 2013

Changes to the payout grid at TD Wealth PIA add to the trend in which firms are looking to reduce their ranks of lower producers

https://webbrokersoc.td.com/waw/idp/login.htm?execution=e2s1 If you ever had any

doubt what is behind the “advisor's” drive to book sales , read this article. It explains TD Wealth PIA's principles of “ advisor” compensation is making their “wealth management representatives “ produce” more . The production isn't better financial plans or investor outcomes though- -it's sales and profit. For example, any advisor bringing in more than $375,000 but less $400,000 in gross production now will earn a flat 20% commission; 2012's payout grid offered a 30%-44% payout for the same level of productivity. The firm also has introduced new policies relating to the discounting

of fees and advisors' stock-option bonuses known as restricted stock units (RSUs). These changes could affect advisors' take-home bonus regardless of their gross production level, as 40% of the bonus amount is based on hitting new targets. (The old RSU award was 100% based on production.). Many TD Wealth PIA advisors have stock options that are deferred for at least three years — meaning their financial ties to the bank are stronger than some may think. TD Wealth PIA is eliminating its registered-plan fee payout for 2014, which will cut $15-$35 per account for brokers because 60% of the firm's 18,000 single-account households are RRSPs and there is a "heavy concentration" of small and stagnant ones ( i.e. little growth in assets and minimal transactions).

TD Wealth PIA's Drive to 100 report lists several key drivers for the investment dealer's future, including evolving to be a "premium price" firm, encouraging productive and profitable behaviour among advi-sors, and attaining industry average pretax profit margin by the end of 2015 and industry-leading pretax profit margin two years later. Says the report: "We want your practices, on average over time, to grow faster and be more productive and more profitable than our competition." The article concludes with this sobering

thought :” ...Instead, the new grids also could lead to bad trading decisions, says one bank-owned brokerage executive who asked not to be named. Advisors who may be close to hitting the next pay scale, the executive

says, could start to display behaviour that's not in the best interest of clients or the industry in order to reach that

target “

The Commission Grid: A Sample Stockbroker Grid Calculation http://blog.getsmarteraboutmoney.ca/preet-banerjee-stockbroker-commission- grid#.VaEXMPlViko

The Pension Fund Advantage: Are Canadians Overpaying Their Mutual Funds? By

Rob Bauer Maastricht University and Luc Kicken ,October 1, 2008

Rotman International Journal of Pension Management, Vol. 1, No. 1, Fall 2008

Abstract: The institutional structure through which individuals accumulate retirement savings is an important issue. Ideally, it is expert and low-cost. This article compares the cost-effectiveness of the pension fund structure with the mutual fund structure. The authors hypothesize that the pension fund structure provides investment management services at lower cost because most mutual funds are conflicted between providing good financial results for their clients and good financial results for their shareholders. Specifically, they compare the investment performance of a sample of domestic fixed income portfolios of Canadian pension funds with those of a sample of Canadian fixed income mutual funds. They find an average performance differential of 1.8 percent per annum in favor of pension funds. This performance gap is approximately equal to the average cost differential between the two approaches. They conclude that high mutual fund fees significantly reduce the net returns of mutual fund investors. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1290645

FCA: RDR has had a positive impact - Citywire

http://citywire.co.uk/wealth-manager/news/fca-rdr-has-had-a-positive-impact/a789824

Fiduciary Standard and Financial Advice: Findings from Academic Literature Abstract:This article provides an overview of theory and empirical evidence related to the benefits and costs resulting from the application of a fiduciary standard of care to the conduct of brokers, dealers (broker-dealers), and investment advisors. The purpose of this document is not to advocate a position on possible regulatory actions. It is intended to provide an in-depth review of the extant literature, primarily from economics, finance, and law, related to the regulation, incentives, and outcomes of the existing advice marketplace. Opinions on the likely impact of various strategies on the marketplace are entirely those of the author and are based on the preponderance of empirical evidence

and the strength of related theories. http://papers.ssrn.com/sol3/papers.cfm?

abstract_id=2419727

Fiduciary Duties - What policy makers need to know : GUEST BLOG (Ron A. Rhoades)

http://www.brokeandbroker.com/index.php?a=blog&id=203

What constitutes a recommendation? :IIROC http://docs.iiroc.ca/DisplayDocument.aspx? DocumentID=0A1A294FFCA745258548A22F3DE1FB04&Language=en

The Importance of Ethics on the Formation of a Profession : IMCA

https://drive.google.com/file/d/0ByxIhlsExjE3ZmxfMm4wT3oxbDA/edit

Defining Wealth Management: IMCA

https://www.imca.org/sites/default/files/cpwa/IMCA_Defines_Wealth_Management.pdf

Assessing the costs and benefits of brokers in the mutual fund industry http://www.cfr- cologne.de/download/researchseminar/WS0607/CostsAndBenefitsOfBrokers.pdf

“Many investors purchase mutual funds through intermediated channels, engaging and paying brokers or financial advisors for fund selection and advice. This paper attempts to quantify the benefits that investors enjoy in exchange for the higher costs they pay in order to purchase funds through the broker channel. We focus on five measurable potential benefits to consumers of brokered fund distribution: (a) Assistance selecting funds that are harder to find or harder to evaluate; (b) Access to funds with lower costs excluding distribution costs; (c) Access to funds with better performance; (d) Superior asset allocation, and (e) Attenuation of behavioral investor biases. Exploring these dimensions, we do not find that brokers deliver substantial tangible benefits. In short, while brokerage customers are directed toward funds that are harder to find and evaluate, brokerage customers pay substantially higher fees and buy funds that have lower risk-adjusted returns than directly-placed funds. Further, brokered funds exhibit no

better skill at aggregate-level asset allocation than funds sold through the direct channel. This analysis implies that any benefits that exist must be found along less tangible dimensions. “

Is Conventional Financial Planning Good for Your Financial Health? | CFA Institute Publications

Economics teaches that households save, insure, and diversify in order to mitigate fluctuations in their living standards over time and across contingencies (i.e., practice

consumption smoothing). But for households, setting spending targets that are consistent with consumption smoothing is incredibly difficult, and even small targeting

mistakes (on the order of 10 percent) can lead to enormous mistakes in recommended saving and insurance levels and to major disruptions (on the order of 30 percent) in

living standards in retirement or widow(er)hood. Conventional planning’s use of spending

targets also distorts its portfolio advice because the standard Monte Carlo simulations assume that households make no adjustment whatsoever to their spending regardless of how well or how poorly they do on their investments. But consumption smoothing dictates such adjustments and, indeed, precludes running out of money (i.e., ending up with literally zero consumption). It is precisely the range of these adjustments that households need to understand to assess their portfolio risk.http://www.cfapubs.org/doi/abs/10.2470/rf.v2008.n1.3

The $25 billion annual mutual fund rip-off

http://cupe.ca/pensions/The_25_billion_annual rip-off

A comprehensive study by Canadian pension fund expert Keith Ambachsheer has found that defined benefit pension plans in Canada achieved annual average returns at least

3.8% higher than mutual funds with comparable investments. Defined Benefit pension funds outperformed the market by 1.23% per year, while mutual funds had average

returns that were 2.6% below the market during the 1996 to 2004 period. Returns for most mutual investors were even less than this, as a result of sales fees and consistently

poor selection of mutual funds by misinformed investors: buying high and selling low.

This means that those with savings in mutual funds lost a total of about $25 billion a year from the higher management fees and lower returns compared to workplace pension

funds. Higher management fees are responsible for about $15 billion of this.

The Effects of conflicted investment advice on Retirement savings: the White

House https://www.whitehouse.gov/sites/default/files/docs/cea_coi_report_final.pdf

Investment Performance and Costs of Pension and other Retirement Savings Funds in Canada: Implications on Wealth Accumulation and Retirement :GOC http://www.fin.gc.ca/activty/pubs/pension/ref-bib/jog-eng.asp

MUTUAL FUND FEE RESEARCH (Brondesbury Spring 2015)

http://www.osc.gov.on.ca/documents/en/Securities-Category8/rp_20150611_81-

407_mutual-fund-fee-research.pdf This report commissioned by the Canadian Securities Administrators considering overhauling mutual fund fee structures says there is “conclusive evidence that commission-based compensation creates problems that must be addressed.” . Other conclusions the report drew from the literature research is that funds that pay commission under-perform ( no surprise here) . It observed that “Returns are lower than funds that don’t pay commission whether looking at raw, risk-adjusted or after-fee returns” . Advisor recommendations are sometimes biased in favour of alternatives that generate more commission for the advisor,” the report said. “ This should lead regulators to rethink the use of embedded commissions and the use of the Suitability standard. Bottom Line: The report makes it clear that the status quo isn't working for clients , reform is clearly needed and the compensation issue cannot be

dealt with in isolation. It says that cautions needs to be exercised to prevent unintended consequences .

Held to a Higher Standard” Should Canada's financial advisors be held to a higher standard? : Research paper ( Jan. 2015)

Abstract Canada’s financial regulators are set to bring in a number of sweeping regulatory changes over the next couple of years in an effort to improve consumer protection and boost investor confidence following the global financial crisis. One of the key changes being proposed by Canada’s regulators is to raise the standard of care that financial advisors owe their clients to a fiduciary standard. Holding financial advisors to a fiduciary standard would require them to act solely in the best interests of their clients, and avoid or disclose all conflicts of interest that arise in the advisor-client relationship. Currently, financial advisors in Canada are held to a “suitability” standard that does not require them to act in the best interests of their clients, instead, they must simply ensure that any investment recommendations are suitable given a client’s risk tolerance and return objectives. The implementation of a fiduciary standard would have widespread implications for the financial industry, as advisors would be required to ensure that all recommendations were in the best interest of their clients, including the minimization of all fees and expenses, which is typically at odds with the advisor’s goal of maximizing revenue from a client account. This literature review will explore the various issues associated with the fiduciary standard debate in Canada, with commentary, analysis, and perspectives from both the consumers and providers of financial advice. It also includes findings from a variety of academic sources on the subject of a fiduciary standard, and its potential impact on the financial advice industry http://dtpr.lib.athabascau.ca/action/download.php?filename=mba-15/open/punkon-aprj- final.pdf

10 things financial advisors won’t say - MarketWatch http://www.marketwatch.com/story/10-things-financial-advisers-wont-say-2013-03-29

TAXES TAKE TOLL ON TOTAL FUND RETURNS, CANADIAN RESEARCH STUDY FINDS

Taxes exceed management fees and brokerage commissions in their ability to erode long- term investment returns," write Amin Mawani and Moshe Milevsky, both professors at the

Schulich School of Business at York University in Toronto, and Kamphol Panyagometh, a

post-doctoral researcher working with Mawani and Milevsky. http://www.advisor.ca/news/industry-news/taxes-take-toll-on-total-fund-returns- canadian-research-study-finds-36524 Full Report Full Report The Impact of Personal Income Taxes on Returns and Rankings of Canadian Equity Mutual Funds, at http://www.ifid.ca/pdf_workingpapers/WP2003.pdf

The Market for Financial Advice: An Audit Study http://dev3.cepr.org/meets/wkcn/5/5571/papers/N%c3%b6thFinal.pdf This working paper by Sendhil Mullainathan (Harvard), Markus Noeth (University of Hamburg), and Antoinette Schoar (MIT), was recently published by the National Bureau of Economic Research (NBER), a private, non-profit, non-partisan research organization. Most individual investors consult a financial advisor before purchasing investments. Given the central role of advisors in the investment process, Mullainathan, Noeth and Schoar tested whether financial advice serves to de‐bias individual investors and thus correct mistakes they might make without these inputs, or whether advisors encourage the same bad behavior. The study defines ‘good advice’ as recommendations that move investors toward a low-cost, diversified index fund approach, which textbook analyses on mutual fund investing suggests. Overall, their findings suggest that the market for financial advice does not alter individual investor biases, and if anything may exaggerate existing

biases. They also found that advisor self‐interest plays an important role in generating

recommendations that are not in the best interest of the clients. They are unwilling to

lean against these biases even when they know they exist because not doing so helps them further their own economic interest.

Conflicts of interest in the financial industry http://balancejunkie.com/conflicts-of- interest-financial-industry/ The author provides some examples of questionable advice coming from the financial industry because of conflicts of interest. Example: “Pay off debt or invest?: "Why won’t my advisor sell Exchange Traded Funds? Jon and Irene have some friends that have decided to move out of their mutual funds and into Exchange Traded Funds (ETFs). ETFs are appealing because they are low cost investment products. Their friends showed them some compelling research showing how higher fees puts investors

at a disadvantage. Why didn’t their advisor suggest ETFs? Most ETFs are lower cost because they either have lower compensation or in most cases, NO compensation built in for the advisor. As a result advisors must either charge a transaction fee to get compensated or they have to charge a discretionary fee directly to the client. What’s best for Jon and Irene really depends on the value provided by the advisor."

A Review of Financial Advice Models and the Take-Up of Financial Advice (2010) http://www.cfs.wisc.edu/papers/Collins2010_FinancialAdvicePaper.pdf Abstract: Financial advice can complement educational interventions for individuals with technical financial issues or acute financial problems; it may also help clients apply knowledge gained from education and adhere to financial goals. This paper reviews the literature on financial advice and develops a taxonomy of financial advice models. Empirical research suggests financial advice has modest or no effects on investment returns and that financial counseling has weak impacts on financial behavior. Using data from the 2009

FINRA Financial Capability Survey, the paper presents evidence that individuals with higher incomes, educational attainment, and financial literacy are most likely to receive

financial advice. ”

How Ordinary Consumers Make Complex Economic Decisions:Financial Literacy and Retirement Readiness http://www.dartmouth.edu/~alusardi/Papers/LusardiMitchellOrdinaryConsumers.pdf Abstract :In this paper we report on several new self-assessed and objective measures of financial literacy obtained using the American Life Panel (ALP); we also link these performance measures to efforts consumers make to plan for retirement. We evaluate the causal relationship between financial literacy and retirement planning by exploiting information about respondents’ financial knowledge acquired in school - before entering the labor market and certainly before starting to plan for retirement. We show that those with more advanced financial knowledge are those more likely to be retirement-ready.

Financial Certification: A Study of the Impact on Professionals' Financial Literacy Levels and Competency by Leslie E. Linfield :: SSRN http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2050405 ABSTRACT:A study was undertaken to determine if obtaining professional certification in financial counseling and education has any impact on the personal financial literacy skills and competency of these individuals. The study found that participation in a professional certification program had a measurable impact on an individual's financial literacy level, study participants demonstrated an increase in their financial literacy on average by 12% from pre-certification assessment scores. The study also found a 25% increase by study participants in their confidence to answer student or client questions about financial topics. Additionally, 89% of the participants indicated that they felt more confident in their understanding of debt management options and 74% indicated an increase in their

understanding of different retirement planning options. These results were an increase of

117% and 89% respectively as compared to their precertification evaluation results. This study indicates that the materials participants study and the process of preparing for

professional certification in the field of financial counseling and education had a direct

effect on participants’ own financial literacy and competency. There were noticeable increases between pre-certification assessment and evaluation scores and post certification assessment and evaluation scores, regardless of the professional's academic achievement, ethnicity, gender, or professional and financial experience.

Personal Financial Planner (PFP)

https://www.csi.ca/student/en_ca/designations/pfp.xhtml

Kenmar Position on Misleading "Advisor" Titles and Designations: Canadian Fund

Watch:

http://www.canadianfundwatch.com/2014/08/kenmar-position-on-misleading-advisor.html

Investor prudence and the Role of Financial Advice: Canadian Fund Watch

http://www.canadianfundwatch.com/2014/09/investor-prudence-and-role-of-financial.html

Financial Advice and individual investor's portfolios Abstract: This paper is an early response to Campbell's (2006) call to analyze the role of financial intermediaries in household finance. We first sketch a basic theory of financial advice that proceeds from cognitive errors and costly information acquisition. We then derive hypotheses about honest and deceptive financial advice and test them on a unique administrative dataset from a large German retail bank. We find that the clients advised are older, wealthier, more risk averse and more likely to be female. Financial advice enhances portfolio diversification, makes investor portfolios more congruent with predefined model

portfolios, and increases investors' fee expenses. Our empirical evidence is broadly in line with honest financial advice. A general implication of the paper is that financial advisory

service has a significant impact on household investment behavior and that it deserves

more attention in future research on household finance. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=968197

Restoring Trust in financial services

Very interesting research paper from the UK http://www.smf.co.uk/files/2813/2317/4997/SMF0287_Trust_in_financial_services_web. pdf

How does trust interact with financial services markets? What impact did the financial crisis really have on trust? And what more long-term, endemic problems in the market

have driven distrust? With a major Social Market Foundation analysis of financial services

markets combined with expert essays, A Confidence Crisis? Restoring Trust in Financial Services answers these questions and proposes a set of radical policy solutions to correct market failures.

A Matter of Trust:The Financial Planning Coalition ( June 2015)

A promotional piece arguing for recognition of financial planning as a profession. http://www.fpsc.ca/a-matter-of-trust

A crisis of cultures: The financial services industry

A Crisis of Culture: Valuing Ethics and Knowledge in Financial Services was conducted to take the temperature as the financial services industry starts to emerge from the

financial crisis. It shows that although executives overwhelmingly recognize the

importance of ethical behavior in the industry, there is still a significant gap between that belief and the industry’s practices. The study also shows that while building a culture based on integrity and financial knowledge across firms helps mitigates risk and makes for a more resilient business, a silo culture remains pervasive and integrated functional and management approaches to risk-proof organizations remains weak. http://www.cfainstitute.org/about/research/surveys/Pages/crisisofculture.aspx

Lack of trust in financial services industry deters investors

“...A widespread lack of trust in the financial services industry may keep Canadians from achieving their long-term financial goals, warns Beth Hamilton-Keen, incoming chair of

the CFA Institute board of governors.“Investors who do not trust the industry are unlikely

to invest” and may be inclined to save less money, Ms. Hamilton-Keen said at an event Wednesday held by S&P Dow Jones Indices in Toronto. “This will result in people having longer working lives, lower quality of life and intergenerational stress.” This lack of trust was evident in a 2013 survey cited by Ms. Hamilton-Keen. According to the CFA Institute

& Edelman Investor Trust Study of more than 2,100 retail and institutional investors in Canada, the U.S., Britain, Hong Kong and Australia, financial services sits at the bottom of industries most trusted among clients. When investors were asked which industries they trust to do what is right, only 52 per cent of investors stated they trust the financial services industry. The technology industry was the most trusted, at 67 per cent...” http://www.theglobeandmail.com/globe-investor/investment-ideas/lack-of-trust-in- financial-services-industry-deters-investors/article25102635/

Why A Fiduciary Standard For Investment Advisers Is Urgent And Crucial http://faircanada.ca/wp-content/uploads/2012/06/Why-A-Fiduciary-Standard_- Kivenko.pdf

COMPLY-Can an algorithm be a fiduciary?

Compliance professionals and lawyers say they are already fielding questions about whether robo-advisers can live up to regulators' expectations. Critics are skeptical, but lawyers say that robo-advisers can indeed be fiduciaries. Securities regulations do not require human contact in an investment adviser's client relationships, said Michael Koffler, a lawyer in New York who counsels investment advisory firms on regulatory issues.

http://www.reuters.com/article/2014/08/14/column-comply-robo-advisers-idUSL2N0QH0TL20140814

Most Canadians did not set aside retirement funds in 2014: poll - BNN News

It can be easy for you to get caught up in your day-to-day lives and not focus as much on the future as you might want to,” said Richa Hingorani, senior manager of financial

planning support at RBC Financial Planning, in a press release.The survey also found that

women are less prepared than men for retirement.

 Three-quarters – 75 percent – said they do not have a retirement savings goal, compared with 62 percent of male respondents.

 Two-thirds – 67 percent – said they have not done any retirement planning, versus

55 percent of men.

 Sixty percent of women respondents said they do not have a financial plan, while

54 percent of men said they do not have a plan.

 When it comes to RRSPs, 39 percent of the women polled said they do not have one, compared with 31 percent of men.

 Meanwhile, 44 percent of women said they do not have a company pension plan,

versus 38 percent of men.

 One of the top concerns expressed by both sexes – 61 percent – is that they will run out of money if they live to be 100.

The poll was conducted by Ipsos Reid between Nov. 3 and Nov. 17, 2014. A sample of

3,205 adult Canadians from Ipsos’ online panel were interviewed online. The poll is considered accurate to within plus or minus two percentage points.http://www.bnn.ca/News/2015/2/17/Most-Canadians-did-not-set-aside- retirement-funds-in-2014-poll.aspx

OSC IAP Seniors Roundtable report http://www.osc.gov.on.ca/documents/en/Investors/iap_20141212_facilitators-report- seniors-roundtable.pdf

OSC Report: Financial Life Stages of Older Canadians (June 1, 2015)

If older Canadians could take what they know now about the financial realities of retirement and apply that knowledge earlier in life, what would they do? A new study commissioned by the Ontario Securities Commission (OSC) provides some of those insights and more. Financial Life Stages of Older Canadians, a national study conducted for the OSC’s Office of Investor Policy, Education and Outreach identifies the top financial concerns of older Canadians, particularly as they relate to retirement planning and living.

The study, released as part of the OSC’s with Seniors' Month activities, identifies the main financial risks of Canadians aged 50 and up at each life stage and how they are being managed.

Read the full report View the research summary and infographic https://www.osc.gov.on.ca/en/Investors_research_index.htm

Retirees: Do they face an advice gap?

http://faircanada.ca/wp-content/uploads/2013/09/Retirees-An-Advice-Gap_Kivenko.pdf?

3a8f0a

Fraudsters take aim at the Baby Boomers: University of Toronto http://difa.utoronto.ca/sites/files/difa/public/shared/Program/ResearchProjects/DIFA2007

-Fraudsters_Take_Aim_at_the_Baby_Boomers.pdf

Consumer Guide » Financial Planning Guide for Consumers :R.F.P. Institute of

Advanced Financial Planners http://www.iafp.ca/guide.php

What to expect from a financial planner, how to find one : Consumer Reports http://www.consumerreports.org/cro/money/personal-investing/financial- planners/overview/index.htm

Quantifying The Economic Benefits of personal Financial planning

http://www.academyfinancial.org/09Conference/09Proceedings/(4C)%20Hanna,

%20Lindamood%20(2).pdf ABSTRACT :To estimate the monetary value of ideal financial planning advice, we address three types of benefits that planners provide: increasing

wealth, preventing loss, and smoothing consumption.We use theoretical examples based

on comparisons of optimal decisions to naïve alternatives to estimate the value of each type of advice. Based on these analyses, we conclude that the value of advice varies with a client’s risk aversion and the percentage of wealth that could be gained or lost. The more risk averse a household, the more valuable is advice that reduces risk. The higher the percentage of a household’s wealth that could be lost, the more valuable is the

advice that prevents the loss. Advice that reduces the risk of a low probability loss is valuable if the potential loss represents a high proportion of a household’s wealth. The

more risk averse a household, the less valuable is advice that might increase wealth. For

risk averse households,the higher the percentage of a household’s wealth that could be gained, the less valuable is the advice relative to that expected gain. Advice that results in a relatively small increase in wealth is worth almost the amount of the expected value of the increase, but advice that is likely to result in an increase that is a high proportion of initial wealth has less value for a more risk averse household. Advice on saving that prevents a substantial decrease in consumption can have a substantial monetary value. Financial planners could use some of the insights from our analyses to better articulate and market the value of their advice. In general, the most risk averse households are likely to place the highest value on comprehensive financial planning advice.

Vanguard research quantifies the value of advice

Financial advisors can add about 3% in net returns for their clients using Vanguard Advisor's AlphaTM, a wealth management framework that focuses on portfolio construction, behavioural coaching, asset location and other relationship-oriented services, according to a research paper for financial advisors released today by Vanguard Investments Canada Inc.Putting a Value on Your Value: Quantifying Vanguard Advisor Alpha examines the individual best practices to improve client outcomes and quantifies the value that advisors can add relative to others who are not employing such practices."Partly the result of the Client Relationship Model reforms being implemented in Canada, greater fee transparency will make it even more important for advisors to successfully communicate their value— a value that, while real, is much easier to

describe than define," said Atul Tiwari, managing director of Vanguard Investments Canada Inc. "This study attempts to define that value and make it more tangible." https://www.vanguardcanada.ca/individual/articles/vanguard-news/news-from- vanguard/advisors-alpha-press-release.htm The study must surely be implying a Best interests mandate for advice givers along with a number of other assumptions.

Holding The Purse Strings: Regulating Financial Planners PIAC

The Public Interest Advocacy Centre (PIAC) called upon the provinces to regulate the practice of “financial planning” in a report , “Holding The Purse Strings: Regulating Financial Planners.”PIAC’s report noted that the practice of financial planning in Canada is comprised of several self-regulating bodies, except in the province of Quebec where

these services are regulated. The lack of provincial regulation allows certain activities that are clearly not true financial planning services to be promoted as such, thereby misleading consumers.PIAC counsel and report co-author John Lawford noted that individuals could claim to be “financial planners” in most provinces with no qualifications whatsoever: “The term ‘financial planner’ should be one consumers can understand and trust. Consumers are confused by the multiple agencies granting similar titles, and say they need consistent, enforceable mechanisms for consumer protection when using these services.”The report also recommends that the federal government look into the availability of comprehensive financial planning and its potential value to Canadians as a part of the government’s commitment to investigating financial literacy in Canada.PIAC’s report is based on two focus groups undertaken in Toronto by Environics Research Group with financial planners and their clients in November 2008.The full report –– Holding The Purse Strings: Regulating Financial Planners–– is available for download at: http://www.piac.ca

The Value of Financial planning study :FPSC

http://www.fpsc.ca/docs/default-source/FPSC/fpsc_valuestudy_reduced.pdf?sfvrsn=0

Value of Financial Planning Study ( 2008)

http://www.iafp.ca/downloads/14/2008ValueofFinancialPlanningReport.pdf

ISO/IEC 17024 Personnal Certification Bodies

ISO/IEC 17024 was designed to harmonize the personnel certification process worldwide. In the European Union ISO/IEC 17024 replaced EN 45013 (1989), which was published in the UK as BS 7513:1989.

The issues that ISO 17024 tackles can be summarized as

  • Defining what it is you examine (the competencies)
  • Knowledge, skills and personal attributes
  • Examination must be independent
  • Examination must be a valid test of competence

where competency is typically described as “the demonstrated ability to apply knowledge, skills and attributes”.

https://en.wikipedia.org/wiki/ISO/IEC_17024 [ FPSC is one of only six certification bodies in Canada to have received ISO 17024 accreditation from the Standards Council of

Canada for meeting globally recognized standards for certification bodies. ]

Recommendation of the Investor as Purchaser Subcommittee Broker-Dealer

Fiduciary Duty http://www.sec.gov/spotlight/investor-advisory-committee-

2012/fiduciary-duty-recommendation.pdf

The Need for a Single Fiduciary Duty Standard: A CFA Institute comment letter to the U.S. Securities and Exchange Commission (SEC).

FoFA - Best Interests Duty Guidance for CPA Australia public practitioners July

2013 http://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional- resources/financial-planning/best-interests-duty.pdf

RESTRICTING SALES INDUCEMENTS Perspectives on the Availability and Quality of Financial Advice for Individual Investors http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2013.n15.1

FAIR Canada Comment letter on Standards of Conduct for Advisers and dealers

http://faircanada.ca/wp-content/uploads/2011/01/FAIR-Canada-Submission-re-CP33-

403-Statutory-Best-Interest-Duty.pdf

Feb. 3, 2014 Comment letter from Dan Hallett

If nothing else is done, simply regulating the use of titles would be a huge step forward. Titles would be tied to specific activities. Even choosing one or two designation programs

– such as those leading to the RFP and CFP designations – and associated codes of ethics and codes of practice would be a terrific start.

http://www.fin.gov.on.ca/en/consultations/rfp-submissions/dan-hallett.pdf

Feb. 7,2014 Comment letter from FAIR Canada

http://faircanada.ca/wp-content/uploads/2011/01/FAIR-Canada-comments-re-Financial- Planning-Regulation.pdf

India (SEBI) on financial Planning

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1358779330956.pdf

WHITE PAPER : Advisor Disguise/Deception

This fact -filled White Paper by respected investor advocate and former investment industry participant Larry Elford explains how Bay Street deceives investors about the integrity of advice provided. A real eye opener and MUST read.Learn the difference between advisor and adviser.There is a need for professional unbiased advice and regulators need to take the bold steps that ensure investors receive it.Better disclosure, calls for enhanced investor education, more reports etc. are necessary but insufficient solutions to investor abuse.It's time to make the word " advisor" meaningful and respected.The retirement income security of Canadians depends on it. http://www.investoradvocates.ca/viewtopic.php?f=1&t=193

Impact of conflicts-of-interest in the financial services industry. ABSTRACT : Americans are increasingly being asked to take responsibility for their own retirement security. However, many people are ill-equipped to make financial decisions and have turned to professional financial advisors for help. While financial advisors often provide valuable services, it can be difficult for individual investors to evaluate the advice they receive and to identify when it has been influenced by a conflict of interest. In this literature review, we examine if and how financial advisors are influenced by their compensation schemes and how this influence impacts retail investors’ financial well- being. We find empirical evidence suggesting that financial advisors act opportunistically to the detriment of their clients. However, the current body of literature generally cannot account for selection issues and the intangible benefits financial advisors provide. In our broader review of conflicts of interest in the financial services industry, we find considerable evidence that investment analysts were excessively optimistic prior to regulation seeking to mitigate bias. There is mixed evidence on how this excessive optimism impacted investors, though the literature generally concludes that retail investors were more acutely impacted, as compared to institutional investors. We also find evidence that conflicts of interest extend to mutual fund management, with actively managed funds imposing sizeable trading costs and brokerage commissions which are not easily observed by retail investors. Regulation and disclosure are often suggested

methods for reducing bias. We find evidence that regulation designed to mitigate conflicts of interest can help reduce the prevalence of biased advice, but regulation that penalizes bad advice may be less effective because bias may be unconscious. Disclosure is unlikely to be an effective strategy if employed in isolation, but may be an important part of a comprehensive mitigation strategy. http://www.rand.org/content/dam/rand/pubs/working_papers/WR1000/WR1076/RAND_ WR1076.pdf

How Do Financial Advisors Deceive Investors?

http://iwd.paladinregistry.com/advisors-2/financial-advisors-deceive-investors/

John DeGoey's Blog 18 | February | 2014

Comments made by a representative from Advocis were helpful in demonstrating the overlapping ‘Venn diagram’ of advisors in general and of planners in particular. The first thing that needs to be determined, therefore, is the scope and applicability of whatever regulations are enacted. I listened carefully and, much as I have written extensively on the subject of professionalizing the advice industry, I have come to conclude that it would be best if we simply regulated financial planners and NOT all registrants. http://www.burgeonvestbick.com/johndblog/2014/02/18/

Kenmar Comment letter to IIROC on the use of financial advisor titles

http://www.iiroc.ca/Documents/2013/f5dd9aeb-cfcd-4f22-9756-555a8de84f77_en.pdf

SIPA – Report “Lack of Truth in Advertising ...” - Small Investor Protection

Association May 5, 2015

This report shows the extent of Bay Street deception regading the quality of advice. http://www.sipa.ca/library/SIPAsubmissions/720_SIPA_Report_Deception_20150505.pdf

Report MAJOR INVESTOR LOSSES DUE TO CONFLICTED ADVICE: BROKERAGE INDUSTRY ADVERTISING CREATES THE ILLUSION OF A FIDUCIARY DUTY : Public Investors Arbitration Bar Association

Misleading Ads Fuel Confusion, Underscore Need for Fiduciary Standard March 25, 2015

By: Joseph C. Peiffer and Christine Lazaro https://piaba.org/system/files/pdfs/PIABA

%20Conflicted%20Advice%20Report.pdf

Financial plans: Understand and manage your risks :IE, Ellen Bessner

“...Financial planning has never been more important than it is now for both clients and advisors alike. Clients are asking their advisors how much they need to save to meet their financial goals for retirement while, advisors offer financial plans to clients to demonstrate their added value — especially with the transparency of fees coming as part of the requirements of the second phase of the client relationship model.However, there are risks to those who provide their clients with a financial plan....Overall, you need to

understand the risks associated with preparing financial plans and follow these guidelines to reduce your risks. Remember that financial plans have become very important to your clients and that it reduces the risks you could face if you ensure clients understand their own obligations and that these are reviewed at regular client meetings...” http://www.investmentexecutive.com/-/financial-plans-understand-and-manage-your- risks

IIROC expresses concern over Ontario Plan to regulate financial planners http://www.fin.gov.on.ca/en/consultations/rfp-submissions/investment-industry- association-of-canada.PDF

IIROC’s proposed regulation of financial planners ill-conceived: Advocis http://www.investmentexecutive.com/-/news-45943

IIROC nixes planner proficiency rule

”..IIROC has taken the view that a coordinated regulatory approach to financial planning should be adopted across Canada, since consistent proficiency, ethical, and professional requirements would have important benefits not only for investors, but also for the financial planning community itself. In light of these considerations, the SRO deemed it advisable to withdraw the limited rule proposed in 2008..”

http://www.ilstv.com/iiroc-nixes-planner-proficiency-rule/

Source: http://www.moneysense.ca/retire/perfect-advisor-for-your-financial-planning- needs/ [ the term adviser here is not consistent with regulatory documents]

Census of members-( estimate) in Canada

FPSC/CFP 17,000-9200 in Ontario

CFA 15,300 – 8500 in Ontario

Advocis 11,000

WHY YOU’RE PAYING TOO MUCH IN FEES : Jason Zweig June ,2015

The way financial advisors charge for their advice often makes no sense, and it needs to change.The typical advisor charges absurdly high fees to manage your money, often with

mediocre results—but next to nothing to provide financial-planning expertise, which can

be hugely valuable.According to survey data gathered from more than 7,000 advisors by Cerulli Associates, a financial-research firm in Boston, 79% of advisors’ compensation comes from asset-based fees—which may bear little relationship to the services the clients use.http://www.jasonzweig.com/why-youre-paying-too-much-in-fees/ Posted fee schedules similar to the U.S. ADV http://www.sec.gov/answers/formadv.htm would allow consumers to comparison shop online.

How Would You Change Finance for the Better? http://blogs.cfainstitute.org/marketintegrity/2015/06/08/how-would-you-change- finance-for-the-better/

Ideas include changing the entire emphasis of finance away from obsession with returns, and instead focus firm and adviser efforts on achieving client’s goals and requiring all

financial professionals dealing with, and pitching to, the public be required to adhere to a fiduciary standard.

2012 CSA Investor Index

The 2012 Investor Index is the CSA’s third survey on investment knowledge, investor behaviour, and incidence of investment fraud. The survey examined similar themes to those conducted in 2006 and 2009, including the incidence of “self-reported” investor fraud and awareness of securities regulators. The 2012 survey also included new questions in the areas of market expectations and the role of social media in investing.

Key findings of the 2012 Index show that:

1. Canadians continue to be approached with fraudulent investments and are not reporting them.Twenty-seven per cent believe they have been approached with a fraudulent investment opportunity at some point in their life, yet among this number, just 29 per cent reported it to authorities.

2. Canadians’ overall investment knowledge is low, with 40 per cent of Canadians failing ageneral investment knowledge test.

3. Social media is emerging as an investment tool, although traditional channels –

such as financial advisers – still dominate.

For more information:View the 2012 News Release The investment industry is more subtle but the impact of advisor abuse/mis-selling on retail investors is very similar to outright fraud.

FINRA Foundation Research Reveals Fraud Victims Vulnerable to Severe Stress,

Anxiety and Depression

The FINRA Investor Education Foundation issued a new research report, Non-Traditional Costs of Financial Fraud, which found that nearly two thirds of self-reported financial fraud victims experienced at least one non-financial cost of fraud to a serious degree— including severe stress, anxiety, difficulty sleeping and depression. While the Stanford Financial Fraud Research Center estimates that $50 billion is lost to financial fraud every year, the FINRA Foundation's innovative research examines the broader psychological and emotional impact of financial fraud."Fraud's effects linger and cause distress well after the scam is over. For the first time, we have data on the deep toll that fraud exerts on its victims, and the results are sobering. This new research underscores the importance of the FINRA Foundation's work with an array of national, state and local partners to help Americans avoid fraud, and assist consumers who have been defrauded," said FINRA Foundation President Gerri Walsh.

Non-Traditional Costs of Financial Fraud found that:

nearly two thirds (65 percent) reported experiencing at least one type of non-financial cost to a serious degree; and

(a) the most commonly cited non-financial costs of fraud are severe stress (50 percent), (b) anxiety (44 percent), difficulty sleeping (38 percent) and depression (35 percent).

Non-Traditional Costs of Financial Fraud found that, beyond the psychological and emotional costs, nearly half of fraud victims reported incurring indirect financial costs associated with the fraud, such as late fees, legal fees and bounced checks. Twenty-nine percent of respondents reported incurring more than $1,000 in indirect costs, and 9 percent declared bankruptcy as a result of the fraud.

Seniors in Ontario make up 30% of bankruptcies: report

The report found seniors and pre-retirement debtors have accumulated the highest unsecured debt load among all age groups. On average, debtors 50 and older filing for insolvency had $68,677 in unsecured debt, while those over 60 had total unsecured debt of $69,031.That compared with an overall average of $56,545 in unsecured debt for

those filing for insolvency.The Bank of Canada and others have pointed to consumer debt as a key risk to the economy.http://www.cbc.ca/news/business/seniors-in-ontario-make- up-30-of-bankruptcies-report-1.3060463

Retiring In Debt The Future For Half Of Canadians; Borrowing Against House A

'Concerning' Trend

http://www.huffingtonpost.ca/2014/12/01/canadians-debt-retirement-home- value_n_6247410.html

Seniors living in poverty on the rise in Canada, OECD says

The comprehensive study on global pensions by the Organization for Economic Co- operation and Development showed that Canadians over 65 years of age are relatively well off when compared with most others in the 34-country group of advanced economies.For example, the average poverty rate for people over age 65 in Canada was 7.2 per cent during the study period, better than the 12.8 per cent average in the 24- nation OECD. But the report also points to gaps in the Canadian situation.For instance, as poverty rates were falling in many OECD countries between 2007 and 2010, in Canada they rose about two percentage points.The OECD says Canada's current pension support, both private and public, replaces only about 45 per cent of average pre-retirement gross income, well below the two-thirds that may experts recommend.Among lower income Canadians, however, the replacement rate is 80 per cent. http://www.cbc.ca/news/business/seniors-living-in-poverty-on-the-rise-in-canada-oecd- says-1.2440714

More help needed for holders of RRIFs: report Eliminating minimum withdrawals entirely may be the best way to help retirees enjoy financial security .

Recent changes to the mandatory minimum withdrawal rules for registered retirement income funds (RRIFs) will reduce the risk that many Canadians will outlive their savings,

but the federal government should consider scrapping the rules altogether, suggests a

report from the Toronto-based C.D. Howe Institute published on Thursday.Amid low

yields on safe investments and continuing increases in longevity, for many Canadians the risk of outliving their savings is still significant under the new rules, the report, Drawing

Down Our Savings: The Prospects for RRIF Holders Following the 2015 Federal Budget,

warns. In calculating that the new rules will reduce the risk of outliving retirement savings, the 2015 federal budget assumes real investment returns of 3%, the report notes, yet real returns on safe investments are currently negative. http://www.investmentexecutive.com/-/more-help-needed-for-holders-of-rrifs- report? utm_source=newsletter&utm_medium=nl&utm_content=investmentexecutive&ut m_campaign=INT-EN-morning Report at http://www.cdhowe.org/pdf/e- brief_210.pdf

CFP Financial Planning Ethic Commitment, or not?

This blog makes it clear that a Code of Conduct is no substitute for a Best interests standard for advice givers. “The Financial Planning Standards Council of Canada lays out

the expected ethics of the best-known and most-common certification for financial

planners in Canada, the Certified Financial Planner (CFP). The FPSC's Definitions Standards and Competencies pdf lays out a laudable and crystal clear commitment to the public:

"Principle 1: client first A financial planner shall always place the client’s interests first"

But hold on, wait a minute, don't hold them to it, "Each principle of the Code presents the expected behaviours of financial planners. The Code is designed to guide professionals in their practice but does not undertake to define the standards of professional conduct of financial planners for the purposes of civil liability." [red highlight mine] Such prevarication does the supposed profession more harm than good. The only good thing is that the statement is out in the open whereas a lot of the other self-styled financial planners / advisors obfuscate, and try to have the public believe the client's best interest drives the advice but in fact it is not even a hoped-for aim “. Source: CFP Financial Planning Ethics Commitment or Not? http://canadianfinancialdiy.blogspot.ca/2015/05/cfp-financial-planning-ethics.html

Who's who in the Investment industry

www.osc.gov.on.ca/en/Investors_inv_news_20150629_financial-advisors.htm

Claiming names | Advisor.ca. Marc Lamontagne

"What does it mean when advisors describe themselves, or their services, as fee-only, fee-for-service, or fee-based? It’s a question investors are asking, so those of us in the industry need to hurry up and make those distinctions..."

http://www.advisor.ca/my-practice/claiming-names-2108 Clearly defined labels for business models would be useful.

Alphabet Soup of "advisor" titles : Forum http://www.advocis.ca/pdf/Forum/junjul2015/p10-12-Alphabet-soup-JUNE-JULY2015.pdf

Understanding Registration

http://www.csa-acvm.ca/uploadedFiles/General/pdfs/UnderstandingRegistration_EN.pdf

Canadian Securities Administrators Consultation Paper 33-403, The Standard of Conduct for Advisers and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty when Advice is Provided to Retail Clients, a 37- page legalistic, technical document (why is it that such important consumer information

is only to be found buried in such a user-unfriendly place?). Page 9 of the pdf contains the following chart; most of the entries in the fiduciary duty columns have a No, few a

Yes and several It Depends. Ref

http://canadianfinancialdiy.blogspot.ca/2015/03/investment-advice-trust-index.html NOTE : Under MFDA ,the regulatory title ( individuals) may be Approved person or Salesperson. Under IIROC, the regulatory title may be Investment Representative,Registered representative or Registered representative- portfolio management. It is rare to see these titles on business cards.

The following table summarizes when a statutory or common law fiduciary duty currently arises based on a registrant's activities: