: Knoweldge Bureau - Submission

CONSULTATION ON FINANCIAL ADVISORY AND FINANCIAL PLANNING POLICY ALTERNATIVES

Submission to the Expert Committee

By Evelyn Jacks, President
Knowledge Bureau
National Head Office:  187 St. Mary’s Road
Winnipeg, Manitoba, Canada R2H 1J2
1-866-953-4769 Direct:  1-204-953-4764
Email:  evelyn@knowledgebureau.com  Assistant:  barbara@knowledgebureau.com

To the Expert Committee, Ontario Ministry of Finance
Financial Advisory and Financial Planning Policy Alternatives
By email:  Fin.Adv.Pln.@ontario.ca

We would like to thank the Expert Committee for the opportunity to comment on this consultation.  Knowledge Bureau is a national educational institute that has been providing continuing professional development to financial professionals for thirteen years, working in collaboration with investment product manufacturers, distribution firms, investment advisors and financial planners. 
To that end, we trust that our comments, as they relate specifically to continuing professional development, are complimentary to the good work of other leaders in the financial industry. If we can be of assistance in your deliberations, please don’t hesitate to call on us.              

Sincerely,
Evelyn Jacks, President
Knowledge Bureau

ABOUT KNOWLEDGE BUREAU

Knowledge Bureau publishes and offers twenty-six online self-study courses qualifying for continuing education certification and leading to occupational skills diplomas. It is the home of the MFA™ (Master Financial Advisor) designation, which signifies specialization in retirement, business succession and estate planning in wealth advisory practices. Knowledge Bureau is also home to the DFA (Distinguished Financial Advisor) Tax Services Specialist™ and DFA Bookkeeping Services Specialist™ designations for professionals in the tax, bookkeeping and accounting services.  Its weekly news publication, Knowledge Bureau Report, is read by over sixteen thousand advisors and is active in social media, print and television.

Founded in 2003 by bestselling author and internationally acclaimed education provider Evelyn Jacks, Knowledge Bureau is a regular contributor on national media, providing commentary on federal and provincial regulation, specifically as it relates to tax and economic policy and global wealth management.

Evelyn has been influential in advising governments on tax and financial literacy policies.  She was appointed by former Finance Minister, Jim Flaherty, to the Federal Task Force on Financial Literacy. She was also appointed by former Premier of Manitoba, Gary Filmon, to the Lower Tax Commission to advise on the direction of the provincial tax regime.  Recently, Evelyn has co-founded the Manitoba Financial Literacy Forum in partnership with the Manitoba Securities Commission, dedicated to increase financial literacy in that province.

Who Are We?

Knowledge Bureau™ is a private, national Canadian educational institute and publisher focused on excellence in financial education for professional advisors and their clients.

Vision

Knowledge Bureau provides a world class virtual campus for practitioners in multiple disciplines to acquire ongoing knowledge and cutting edge skills leading to specialization and mastery in delivering tax and financial services.

Mission

Knowledge Bureau provides an academic path to continuing professional development with certification courses leading to diplomas and mastery designations in specialized financial industry competencies.  

Mandate

To raise standards of excellence for advisors who specialize in the areas of tax, bookkeeping, investment advice, retirement, succession and estate planning services.  

Philosophy

Continuing professional development in financial services requires the ongoing acquisition of skills and knowledge based on current tax, economic and regulatory issues. Financial advisors need to work collaboratively with clients, providing enhanced advice and joint decision-making, together with clients and their multiple advisors.  Strategic wealth planning however is required where multiple stakeholders are concerned and sustainable family wealth management across multiple generations is the client’s objective. Knowledge Bureau has developed an educational framework around which multi-faceted technical & strategic skills are taught, known as Real Wealth Management™

Unique Value Proposition

Knowledge Bureau differentiates its educational content from other programs by integrating a rich understanding of tax and its implication on both individual investment decisions and intergenerational planning.  A blended learning environment is offered: online courses supplemented by workshops and conferences.   In addition to creating and delivering timely, comprehensive, practical, and immediately applicable courses for financial professionals, Knowledge Bureau partners with many national firms to provide award-winning in-house curricula.

SUBMISSION:   BACKGROUND INFORMATION

Currently in Ontario, no general legal framework exists to regulate the activities of individuals who offer financial planning, advice and services. The absence of a legal framework has raised questions about proficiency, quality standards and potential conflicts of interest.

Objective:  To investigate the merits of more tailored regulation for individuals engaged in financial planning and the giving of financial advice. Key recommendations will be provided in a final report, for review by government in 2016.

QUESTION 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.

Yes, we believe that financial services required by individuals in various age and demographic groups, personal circumstances  and with varying levels of wealth, fall into three, rather than two categories:  financial advisors, financial planners and family wealth managers, as described below.  The provision of financial advice related to product selection is indeed different from the provision of financial planning and family wealth management;  however there is a common thread:  each provide objective-based advice that will match the plan to the product. 

Financial Advisors:  These practitioners work with investors (and financial planners and family wealth managers, if they are any involved) as product experts to find,  recommend and execute on the appropriate product options required to fund and manage risks to various life events.  These can include education, home ownership, retirement, incapacity, estate, and succession planning.  They are accountable for choosing the right product solutions to meet needs based on decisions made jointly between the client and the planner (if there is one). They are also accountable for ongoing portfolio mix rebalancing and advice on timing and amounts of disposition of investments.  Their role is as important at the time of investment as it is at the time of disposition and their competencies should encompass knowledge about other financial consequences of their actions, such as tax and legal consequences.  

Financial Planning:  This discipline sets out the process required to achieve financial results with accountability over and above those required from investment activities alone.  Financial planners work with individual clients or individual family households to identify financial objectives for income and capital, choices in managing money, and the types of investments that are suitable for the funding of specific life and financial events.  These families may not yet have reached wealth management goals but are seeking help with investment principles and processes.  They may also be working with multiple financial advisors.

Financial planners require competencies that include development of financial objectives specific to needs, analysis of income and capital, budgets and net worth statements as well as tax returns.  They may develop plans that direct savings into the right investment vehicles for specific purposes, with a focus on minimizing erosion of income and capital from taxes and fees.  They may participate in planning associated with family asset transfers.  

Family Wealth Management:  This discipline focuses on the strategic application of financial planning principles and related investment solutions to the objectives of the family as a whole over multiple generations, where applicable.  Generally, but not exclusively, planning activities are specific to families with high net worth and may include the management of assets in personal, corporate and trust accounts.  Tax is an important consideration for these families as it can erode over fifty percent of their wealth, depending on the tax brackets of individuals in the family and the type of assets held.  

The duties of care provided by the family wealth advisor therefore revolve around a strategic plan that identifies stakeholders to the wealth plan, including other family members and professional advisors such as tax, insurance and legal advisors.  Family wealth managers may also work in conjunction with other financial planners who serve individual family members.  Competencies may include the development of family net worth statements and customized wealth management plans specific to family objectives. 

The evolution of these roles has been more pronounced as a result of the recent growth of wealth in Canada particularly by an aging demographic and their families1.  As a result, there is a renewed demand for financial advice, financial planning and in our view, the third category of services, family wealth management, as described above.  

Like other professions – ophthalmology, for example – the services required by the client ultimately may include a variety of products and related service competencies.  Practitioners, who excel at fitting the perfect pair of glasses, will not also repair an optic nerve or manage the various diseases of the eye.  Their educational requirements are different, as is their compensation and the regulation of the quality of their services.

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

Respectfully, no.  While there is regulation relating to financial advice, there is no regulation overseeing financial planning.  It is also not clear where the two meet in relation to delivering a holistic solution to the client that is objective-based over a period of time.

QUESTION 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?

While we cannot comment on legal standards, we have the following comments on avoiding conflicts of interest and potential conflicts: 

Assisting advisors and planners in this regard begins with a clear definition of what is to be regulated. All stakeholders involved in the delivery of financial recommendations should clearly understand the parameters of their specific roles, what their responsibilities are, professional competencies they must have in order to practice in their role and resulting penalties should they perform short of the requirements.

Generally accepted principles for the development and execution of individual financial plans and for family wealth management would help to ensure client objectives are identified and met with appropriate solutions.  These guidelines, however, must be revisited periodically in relation to tax and economic changes in a multi-faceted marketplace and must be accountable to improvements in personal and family net worth.  These process will help advisors stay onside of legal standards.

QUESTION 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:

Our comments below are specific to the efforts assigned to continuing professional development of a dynamic industry in which financial advice, planning and wealth management is provided against the backdrop of rapid change.

a) Licensing and registration requirements;

We believe that a rigorous academic path to continuing professional development that leads to specialized expertise is very important, as opposed to a random path.  

In addition, rapid changes in the marketplace, driven by technology, regulation, the economy, changes in taxation rules (TFSA maximum contribution limits and RRIF withdrawal requirements as recent examples), and demographics in general, require continual and meaningful updating of licensing and registration requirements.  

Impediments to the provision of broad educational choices for continuing professional development currently include a significant duplication of costs and time in meeting requirements through multiple accreditation channels  (example:  a one hour Continuing Education (CE) credit should not cost the educational provider thousands of dollars as a result of approval from multiple organizations).

b) Education, training and ethical responsibilities;

The integrity of the capital market system can be eroded by inadequate education of those who work with investors, not just at the time of licensing, but on an ongoing basis. Regulators should allow for broad participation in the development of educational standards, curricula and delivery of instruction by expert educators and educational institutions focused on the needs of the industry.  These stakeholders should be allowed to participate in ensuring educational guidelines and curricula are in sync with rapid changes in the marketplace.

Financial advisors, planners and wealth managers need to monitor the acquisition, continued holding and ultimate disposition of securities as well as the behavioral finance related to their dealings with clients.  Their role includes the education of the client, advocacy for the client and stewardship of the client’s resources. Training in each of these roles as well as ethics and fiduciary duties may form a part of ongoing educational requirements.    

c) Titles and designations of individuals who engage in financial planning and/or the giving of financial advice;

Advisors, financial planners and wealth managers should be encouraged to continue to obtain specialized knowledge beyond their current license, titles or designations.  This is particularly critical in the practice of family wealth management where a broad and deep knowledge in the areas of business planning, tax and estate planning, for example, are required to provide detailed, holistic solutions, often for multiple stakeholders in the family.      We recommend an open architecture in the ongoing achievement of specialized titles and designations that follows educational guidelines appropriate for emerging trends in the industry.

d) Specific activities that should be included or excluded in a regulatory scheme;

Financial planning should include comprehensive family wealth management.

e) Costs and other burdens of regulation;

As discussed above, from an educational provider’s point of view, curriculum that requires approval from regulators or accreditors should only need to be vetted and charged for, once.   

f) Complaints and discipline mechanisms.

Educational institutes which grant licenses to use certification marks must provide standards of proficiency and testing as well as codes of conduct and continuing education required before issuing such certification, licensing and re-licensing.      

QUESTION 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.

Financial advisors and financial planners provide a very important service.   However, a silo-approach to regulatory oversight is not conducive to inter-advisory consultation to the benefit of clients.  

QUESTIONS 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?

Yes, this is certainly of assistance but financial advisors are already listed under the CSA website.  Insurance agents and financial planners should also be listed.    

 

1 According to Statistics Canada, amongst the 20% of family units with the highest incomes, or top income quintile families, average wealth increased by 80% between 1999 and 2012, rising from $721,900 to $1,300,100.