held-responsible-regulators

It seems like every few weeks, another body releases a consultation paper about the financial industry – so you’re forgiven if you haven’t been keeping track.

Last week was the deadline for comments on the Ontario government’s second consultation paper on how the province’s financial planners should be regulated. It came out in April, prior to the CSA’s targeted reforms and best interest proposals.

The Ontario paper proposes eight policy recommendations, which include:

  • more stringent regulation of people who use the financial planner title and/or offer financial planning services and products;
  • the introduction of a new regulatory body (the Financial Services Regulatory Authority, or FSRA) to oversee firms and people who act outside the current regulatory system; and
  • the introduction of a statutory best interest duty (SBID).

The problem, says the paper, is “Ontario has no comprehensive legal framework to regulate the activities of individuals and firms that offer financial advisory and financial planning services. The absence of such a framework has raised questions about proficiency, quality standards and conflicts of interest.”

Still, the response to this paper has been mixed, with industry players saying the government’s definition of financial planning activity is too broad. Further, rather than rewrite industry rules and processes, experts say the government should leverage what already exists.

Here’s a summary of the feedback included in comment letters from PMAC, FPSC, and the IIAC.

Definition of financial planner

PMAC: Supports better regulation of the title, but says in its letter, “the proposed regulation of financial planning activity is too broad and the scope of what constitutes financial planning activity is too […] far-reaching a concept to be workable or necessary. The focus of regulation [should] be on individuals and firms that hold themselves out to the public as financial planners.

“Targeted consultations with fee-only planners to determine the most appropriate regulator for this group may be useful.”

In an interview, PMAC president Katie Walmsley added, “To my knowledge, no one has an idea of how big this group is or which regulator they should be covered under. But [a new regulator] shouldn’t be given this task. If there’s one dominant regulator currently working with members of this group, it would make sense for them to go there.”

FPSC: Supports some regulation of the title, but says it has “a number of concerns with the committee’s proposed solution, which focuses on all financial planning activity, and involves four regulators all regulating that same activity.”

It also points out that unlicensed CFPs are still “subject to oversight” by FPSC and often “are members of other allied professions such as Chartered Professional Accountants.” As a result, it argues, “the perceived oversight gap is therefore overstated.”

IIAC: “The IIAC recommends the establishment of common standards for those who ‘provide comprehensive financial plans to clients and/or use the title of Financial Planner.’”

The organization also supports regulating unregulated professionals. It supports having the proposed FSRA do so, instead of creating another new body, which the IIAC says isn’t cost-effective.

Do we need another regulator for financial planners?

PMAC: No. “There’s already a fragmented regulatory framework in Ontario [and] a new regulatory body is unnecessary […] We instead recommend that individuals or firms holding themselves out as financial planners outside the current regulatory framework be subject to the oversight of one of the existing regulators or SROs.”

Walmsley says, though, “if the vision of FSRA is as a coordinating body,” then PMAC may have a different view of its practicality.

FPSC: For certain things only. “Under our suggested modifications to the committee’s recommendations, the proposed new FSRA would [only] assume authority for accrediting a financial planning professional body (or bodies, if deemed necessary). […] This model of accreditation of professional bodies could be expanded to include other title restrictions.”

In an interview, FPSC’s vice-president of policy and regulatory affairs, Stephen Rotstein, said the FSRA could act as a middleman between the government and financial accreditation bodies. “This wouldn’t create a new SRO or re-create the wheel.”

IIAC: Yes, for those who are currently unregulated, but “it would be ideal to create a solution that would apply nationally and not simply an Ontario-only approach.”

Statutory Best Interest Duty

PMAC: Supports closing the gap between what consumers expect and the duty advisors actually have. But, before the expert committee moves forward, it must work with CSA because it’s already proposed a best interest standard.

Walmsley adds, “If several best interest standards are applied, that brings up an interesting legal question. Would one be higher than the other? Bottom line is, initiatives need to be aligned or you’ll have different standards in place across firms, provinces and the industry.”

Read: How will the best interest standard affect you?

FPSC: Overall, “it would be prudent for the Committee to defer to the CSA on this matter.”

FPSC adds it’s unclear as to how the SBID would be applied. Further, “The [government’s] focus on activity-based regulation has created a need for exemptions to the proposed SBID, since [some] professionals are already held to an existing [duty].”

Rotstein points out, “If you make a best interest standard statutory, that’s exponentially different than what’s being proposed by the CSA. […] Also, we need national standards. And what the CSA is proposing potentially could be national. The work is underway.”

Read: Only sell proprietary product? You’re a salesperson, argues CSA

IIAC: Aside from the government needing to work with CSA, this group says, “The Expert Committee’s definition of the SBID as ‘an explicit obligation designed to ensure that clients’ interests are put first and conflicts are avoided’ is contrary to the best interest duty applied in many countries, including the U.S., U.K. and Australia. [These countries] recognize that in the financial services industry, it’s impossible to avoid all conflicts of interest. Such jurisdictions have included exemptions for necessary conflicts of interest, provided disclosure is given to clients.”

What are your thoughts on how the recommendations might impact the industry?

Originally published on Advisor.ca
See all commentsRecent Comments

NPG

The regulators keep talking about making sure advisors use low cost products for their clients. That could destroy a client.
Try and buy a low cost S&P 500 ETf in January 2008 for a client. It was so cheap the client lost half his or her portfolio.

Tuesday, September 13 @ 2:44 pm //////

NPG

there is no such thing as best interest or Fiduciary dutys. The United States is doing this and it is crap. You cant mandate this.
Who decides what is the best interest of the client. Is it the regulator, advisor, the client who? Everything you can propose has a conflict. Just stop trying to regulate something that is not possible.

Tuesday, September 13 @ 2:41 pm //////

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