Financial Planning and Advice: Is an Integrated Regulator the Answer?

Does financial planning require its own regulatory oversight? That’s the issue the Ministry of Finance in Ontario has charged an expert committee with. Their preliminary recommendations propose an “integrated regulator” and significant restrictions on who has the qualifications to hold themselves out as a financial planner. Consultations on the matter must be submitted by tomorrow, June 17.

Knowledge Bureau has been pleased to participate in the process, providing a written submission in September 2015 and a presentation in front of the committee in Ottawa in May 2016 in response to the preliminary policy recommendations.

Eight recommendations were presented by the Expert Committee for comment, summarized below , with our additional thoughts for your consideration::

1. Required Regulation. That financial planning in Ontario be regulated as a discrete activity within existing regulatory frameworks by an “integrated regulator” and that those to be regulated fall into three broad groups:
   1. any individual or firm that provides Financial Planning services either expressly or implicitly through Holding Out by way of titles, described services or otherwise,
   2. individuals and firms that provide Financial Planning and whose Financial Product Sales and Advice activities are regulated by the existing regulatory framework for securities, insurance and mortgage brokering and
   3. individuals or firms performing Financial Planning activities outside the current regulatory framework, who should have their Financial Planning activities regulated by a proposed Financial Services Regulatory Authority (FSRA).
2. Harmonized Standards. That standards relating to education, training, credentialing and licensing of individuals providing Financial Planning be harmonized and subject to one universal set of regulatory standards.
3. Statutory Best Interest Duty. That a Statutory Best Interest Duty be adopted and applied to all individuals and firms who provide Financial Product Sales and Advice and/or Financial Planning in Ontario, based on a uniform and codified standard of care.  This is defined as an explicit obligation designed to ensure that clients’ interests are put first and Conflicts are.
4. Exemptions. That the only exceptions to the universal Statutory Best Interest Duty be those already subject to such a standard under existing licensing and registration requirements, those subject to a professional legal standard of care and fiduciary duty and “order takers” where no financial advice is being provided to the customer and the individual or firm is exempt from suitability requirements (as in the case of discount brokers).
5. Referral Arrangements. That no individual or firm that provides Financial Product Sales and Advice or Financial Planning be permitted to pay a referral fee to a third party for the referral of a client or prospective client except if the person receiving the fee is regulated and owes a best interest duty to clients, and provides full transparency of the arrangement.
6. Titles and Holding Out. That the use of titles be prescribed to reduce consumer confusion and specifically, amongst other criteria that regulators develop, that they be chosen from a circumscribed list of approved titles for the regulated individuals and firms. Furthermore, such regulated individuals and firms would not be permitted to use other individual designations, qualifications and credentials other than professional academic qualifications and those approved by Regulators.
7. Central Registry. That a central registry is created to provide a one-stop source of information for consumers on licensing and registration status, credentials and disciplinary history of regulated individuals.
8. Support of Financial Literacy and Investor Education. That financial literacy and investor education be supported by the Ontario government, regulators, public and private schools, non-profit organizations and the financial services industry.

We found the committee’s observation, that the number of individuals and firms providing Financial Planning services only on a stand-alone basis,  is too small to warrant the costs associated with a new regulatory body.    The concept of an “integrated regulator of financial services” will require focused effort on the harmonization of regulation and standards—no small task.

One of the key issues to be regulated is who can call themselves a “Financial Planner” and then provide regulated Financial Planning and Advice in conjunction with product selection and sales.  The various terms specific to the planning and advice activities will likely require some more work to bring clarity to the financial planning framework,  roles of financial planners in various industry sectors,  and responsibilities to be regulated,  as well as the consequences of non-compliance, including the omission of a financial plan when providing product sales and advice.

As activities related to planning, prescription and product selection can be provided by the same person under such a model , a Statutory Best Interest Duty can help to discourage conflicts of interest.  However, an agreement on the precise definition of this duty and its applications across the industry must be achieved between all the stakeholders involved, and ultimately enforced universally with equity and fairness.  Again, this is a difficult task, as financial planning encompasses many stakeholders and often, a long period of time.

In establishing and developing proficiency standards for those who hold themselves out as Financial Planners, it will therefore be important to plan for an academic path to lifelong learning and professional development, especially critical in this profession in which rapid change disruptors are rife, and allow for the evolution of competencies.  We have therefore recommended that one minimum professional designation be supplemented by opportunities to specialize with robust learning throughout a financial planner’s career.  Hopefully, in approving and regulating credentials, proficiencies and titles, future regulators  will plan for the evolution of required competencies that do not exclude expert education providers who can develop curriculum for such specialized expertise above that of minimum qualifications requirements.

Ultimately, the benefit of additional regulation is to empower both the advisor and the consumer of financial planning services. This collaboration, done well, will empower the consumer with access to engage in a process to confidently find and work with a knowledgeable and trusted professional, who is trained to address unique financial planning needs both strategically and tactically, as they change over time.

What’s your take on the issue? Public input is invited and written submissions can be made by email to Fin.Adv.Pln@ontario.ca on or prior to June 17.

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