hello-my-name-is

The nation’s securities regulators have proposed that only certain people should have the privilege of calling themselves advisors: namely, discretionary IIROC registrants. Reps who work for firms with mixed shelves might also be able to use the term, albeit with a qualifying adjective for MFDA folks: “restricted securities advisor.”

Everyone else would be a salesperson.

In total, the Canadian Securities Administrators (CSA) offer three options in Consultation Paper 33-404. But all fall short, because no matter which wins, insurance-only folks could still call themselves whatever they want.

“There is no restriction on use of titles such as ‘advisor’ in the [Ontario] Insurance Act,” confirms a spokesperson for the Financial Services Commission of Ontario. OSC confirms that “individuals solely registered with provincial insurance bodies are outside the scope of [33-404].”

The result? If titles reform passes, only the most and least credentialed finance folks could call themselves advisors.

There are more problems with insurance licensees being outside CSA purview. In combing through IIROC and MFDA disciplinary records from 2013 to 2015, we found that nine reps kept their insurance licences for at least six months after being permanently banned by their SROs. As of October 6, four of those nine are still authorized to sell.

Apologists say the most complex thing insurance licensees can sell is a segregated fund. But CSA itself classifies seg funds as “low to high” risk. Even the Canadian Council of Insurance Regulators (CCIR) calls it a “regulatory gap” that seg funds don’t fall under CRM2 disclosure rules.

What’s more, a banned rep with an active insurance licence can still safely label himself an advisor in marketing materials. At least one of the nine did just that.

The system is flawed. “The insurance industry keeps playing by rules contrary to the best interests of investors,” one advisor told me in response to our investigation. Said another of banned reps still holding insurance licences, “It’s so typical of the loopholes that still exist in this industry that cause it to have a poor reputation for trustworthiness.”

It’s high time we filled these holes.

Ideally, one national body would regulate all financial products, including securities, pensions and insurance. (Stop laughing.)

As a pragmatist, I’d settle for three modest changes: regulators should restrict seg fund sales to MFDA and IIROC reps with insurance licences. Seg funds should be subject to CRM2, as CCIR proposes, and insurance-only licensees should have the title of agent, broker or salesperson.

Given that it’s taken two decades for Glorianne Stromberg’s recommendations to become CRM2, I’m not holding my breath. But, until these issues are addressed, our patchwork of regulation will continue to create arbitrage opportunities—making the privilege of calling yourself an advisor no privilege at all.

Full comments from the Financial Services Commission of Ontario

Q1. What is FSCO’s reaction to the proposals? Does FSCO have any plans to modify the statutory duties of insurance advisors?

A1. FSCO is closely monitoring this and other recent consultations in the financial services sector. FSCO, as a regulator, administers the Insurance Act and its regulations; only the government has the authority to make amendments to legislation or regulations.

Q2. Would FSCO support a best interest standard for the insurance advisors it regulates?

A2. FSCO’s legislative mandate is to provide regulatory services that protect the public interest and enhance public confidence in the sectors it regulates. FSCO is looking forward to the final recommendations of the Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives, expected in late 2016. It will be the government’s decision whether or not to accept any or all of the Expert Committee’s recommendations.

Q3. Does FSCO regulate what a FSCO-regulated person may call himself? If not, would FSCO consider doing so?

A3. There is no restriction on use of titles such as “advisor” in the Insurance Act. However, the Insurance Act defines “agent” as a person who solicits insurance on behalf of an insurer and who is not a member of the Registered Insurance Brokers of Ontario (RIBO). FSCO, as a regulator, administers the Insurance Act and its regulations; only the government has the authority to make amendments to legislation.

In other sectors FSCO regulates, there may be such statutory restrictions. For example, under the Mortgage Brokerages, Lenders and Administrators Act, 2006, use of the titles “mortgage agent” or “mortgage broker” is restricted to those who are appropriately licensed by FSCO.

Q4. If the title reforms are successful, IIROC and MFDA rep titles will be regulated. And, if the answer to Q3 is no, then large numbers of IIROC and MFDA reps will no longer be able to call themselves advisors, but FSCO-regulated people will be able to. What are your thoughts on that?

A4. IIROC and MFDA operate in multiple jurisdictions under the authority of the provincial securities regulators.  FSCO’s oversight is of the conduct of the insurance business in Ontario. FSCO is looking forward to the final recommendations of the Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives, expected in late 2016. It will be the government’s decision whether or not to accept any or all of the Expert Committee’s recommendations.

Melissa Shin is Editor of Advisor Group. Email her at melissa.shin@tc.tc.

Originally published in Advisor's Edge

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See all commentsRecent Comments

nukeit

I did spend almost a year as a financial advisor but it didn’t work out, too limited and I got bored. Also impossible to apply the best interest of the client principle. Returned to my profession of 30 years as a financial planner.

Tuesday, October 25 @ 10:34 am //////

ADERN

Not sure exactly what an LL.B has to do with being a financial advisor, but knock yourself out. My point is still the same – why is an investment regulatory body the one that defines who is or is not an advisor over the relevant planning designations.

Saturday, October 15 @ 11:39 am //////

FADOOTZ

FSCO needs to be torn apart, dismantled and merged with MFDA/IIROC or some other responsible governing body. Shame on FSCO…shame…

Wednesday, October 12 @ 1:43 pm //////

JATTIS

I agree with Melissa. I have earned the CFP, CLU, TEP, FCSI and CIM designations, on top of my B.Comm and LL.B. I am an MFDA registrant in 4 product Vince’s, and insurance licensed in the same four provinces. N addition to investment planning, I do complex financial and estate planning that straddles investment and insurance.
Please do not suggest that a newly minted IIROC representative has more entitlement to be called an advisor than someone like myself.
Are there any curbs and controls over IIROC’s self-promoting? Is this just another power grab by the banks?
Joel A.

Wednesday, October 12 @ 11:17 am //////

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