• Wed. Nov 29th, 2023

Ontario’s messy effort to define ‘financial advisor’ and ‘financial planner’

This article is from Citywire RIA’s sister site, Citywire Canada. For more coverage of the Canadian wealth industry, visit citywirecanada.com.

For prospective Ontario investors, finding financial advice is easy. Perhaps too easy.

Canada’s most populated province has no hard rules around who can call themselves a financial advisor or a financial planner – leaving investors with little insight into how competent their financial intermediary may be, and where their true motivation lies. 

To address this, the province has brought forward the Financial Professionals Title Protection Act, which will set minimum standards for the use of the titles ‘financial advisor’ and ‘financial planner.’ The act states that an individual can only use one of those titles if they have a relevant approved credential and are ‘in good standing’ with the ‘approved credentialing body.’

This legislation was introduced by the Ontario Government and passed in May 2019, though it is not yet in force. The framework is now overseen by the Financial Services Regulatory Authority of Ontario (FSRA), and after two public commentary rounds, it now sits with the provincial finance minister for approval.

The framework gives a great deal of power to these approved credentialing bodies. FSRA itself will take action against individuals using protected titles without qualifying credentials, but credentialing bodies will be responsible for supervising their own members. If a credentialing body fails to take enforcement action, FSRA could revoke that organization’s approval.

So which credentials and credentialing bodies will qualify? That remains unknown, with the application period not expected to open until later this year. But several industry groups are jostling for a seat at the table – and a high-stakes debate has ensued.

Who’s a planner?

Among those groups are Advocis, an advisor association with thousands of members across the country, many of whom specialize in insurance.

Advocis is going to bat for two designations: Chartered Life Underwriter (CLU), which is delivered through the Institute for Advanced Financial Education, and Professional Financial Advisor (PFA), which was created by Advocis in 2020.

The CLU was first launched in the 1920s, and is widely considered the gold standard for insurance advisors and estate planners. It is also often added on as an extension of the Certified Financial Planner (CFP) designation.

However, Advocis CEO Greg Pollock believes the CLU is a financial planning designation in its own right.

‘The CLU in fact is a financial planning designation, and it focuses on wealth management. It focuses on estate planning, and really is an advanced designation,’ Pollock said.

Pollock added that he believes both the CLU and PFA designations will qualify for title protection, though his stance has received pushback.

Among those in opposition include the Financial Planning Association of Canada (FPAC). FPAC does not offer its own designations, but is a proponent of the CFP and requires members to hold their CFP, Registered Financial Planner (RFP), or Planificateur Financier (Pl. Fin.) designation.

While FPAC president Jason Pereira believes the CLU should ‘absolutely’ qualify as a designation for financial advisors, he believes financial planners should have to hold their CFP.

‘At its core, the CLU is an insurance designation. Life underwriter is in the title. The financial planning aspects of it are secondary,’ Pereira said.

‘This goes back to a proficiency standard – is the estate planning or insurance pieces sufficient to meet the criteria of competency under the CFP level? Probably. Is everything else, all those other areas? No, they are not.’

These split opinions illustrate the range of views on what should qualify as an authorized credential.

After receiving a total of 44 comments during its first consultation round and 27 in the following round, FSRA published updated guidance on the standards hopeful credentialing bodies must meet in order to be considered.

According to FSRA’s latest outline, a financial planning education program must include content on the Canadian financial services marketplace and regulatory environment, economics, ethical conduct, and conflicts of interest.

It must also demonstrate a product-agnostic approach, and prove it can cover a range of planning areas, including estate, tax, retirement and investment planning, insurance and risk management, and finance management.

Who’s an advisor?

The requirements for a financial advisor curriculum are similar, though with less of an emphasis on holistic planning and more of a focus on developing, presenting, and implementing suitable investment recommendations.

An advisor program must also include content on common investment products, and in-depth knowledge or expertise in one or more of those products, as well as adequate knowledge of estate, tax, and retirement planning, finance management, and insurance and risk management.

However, Pollock has speculated that advisors may not be required to hold a professional designation of any kind, which he thinks would be insufficient.

‘It appears that if one holds a mutual fund license in Ontario, that they will be able to hold out with the title financial advisor,’ he said. ‘We think that perhaps the direction doesn’t go far enough.’

Pollock explained that about 60% of Advocis members currently hold professional financial planning, insurance, and advisory designations, including the CLU and PFA.

He added that there are concerns from the government and FSRA that there will be a loss of access to financial advice if the bar is set too high at the outset.

‘I understand that,’ he said. ‘So we’re starting with the government, and now the regulator, and I think over time we will see the standards evolve. From our perspective, one should probably hold a professional designation to hold out as a financial advisor. I suspect that’s a number of years down the road.’

From Pereira’s perspective, this undefined advisor standard is precisely the problem with trying to protect the term ‘financial advisor.’ He believes the legislation should have solely focused on ‘financial planner.’

This would have brought Ontario’s framework more in line with Quebec, which only recognizes financial planners and restricts other titles.

‘That [financial advisor] title is a bit of a challenge to get right,’ Pereira said. ‘Technically it can mean almost anything… I would almost rather they went a bit further and broke down things like estate planner that are more topic specific.’

Who does the policing?

Some say the act doesn’t do enough to protect consumers.

Jean-Paul Bureaud, executive director of investor advocacy group FAIR Canada, said he is ‘disappointed’ with the framework, worrying that credentialing bodies will lack the real ability to take enforcement action against rogue members.

‘What level is FSRA going to set the bar when it comes to authorizing a credentialing body, and what steps are they going to take to make sure that credentialing body is actually doing effective enforcement?’ Bureaud said.

He noted that a lack of clarity about what the credentialing body system will look like, including how many will be authorized, adds to his concern. He questioned the role that groups like Advocis may play.

‘Should we allow groups that are more like lobby groups to be credentialing bodies? Should we allow private organizations that are only interested in marketing a brand to generate income and pay lip service to enforcement? Those are real serious questions we’re going to have to figure out as this thing plays out.’

Bureaud said the current set-up will still leave many consumers vulnerable to harm.

‘Under the proposal, they talk about going after people who are using the title who haven’t been credentialed. They have the power to do that. But what about somebody who is credentialed, who causes harm because of misconduct, and the credentialing body doesn’t take action against that individual? That’s the scenario we’re concerned about,’ he added. ‘We’re placing a lot of trust and confidence in the credentialing bodies.’

A unified approach?

One persistent concern is that different providences using different rubrics across Canada could make matters cumbersome for advisors and confusing for clients.

The Ontario act ‘should be in line with the Quebec standard, because that would be the beginnings of a national framework, rather a situation whereby every province draws the bar to a different level. We get Ontario, Quebec, B.C. and Alberta on the same page, and that’s the majority of the population,’ Pereira said.

However, this may prove challenging, as different provinces have already embarked on their own title regulation journeys.

In 2020, Saskatchewan passed legislation to begin the process of regulating financial planner and financial advisor titles, and New Brunswick seems to be on track to do the same – though their approaches may differ.

‘In Saskatchewan, they’ve introduced the proposal to kind of emulate the Ontario framework, with some differences. In New Brunswick, they’ve talked about introducing a similar framework, but more aligned to Quebec’s model… To me, it’s about trying to find ways to reduce confusion over titles. Right now, we have more of a patchwork approach,’ said Bureaud.

‘One plea I have is for people to look at the world from the consumer’s perspective, and just to try and appreciate how confusing it is. At the end of the day, what we want is clarity between what your title is and what the consumer knows you do.’

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *