The staggering pace of new regulation affecting advisors over the past few years has reached a juncture where even marginal layering of compliance is now causing substantial negative consumer impact.

Some suggest the current fi nancial turmoil has made the market ripe for even greater oversight. However, shortsightedness regarding the direction regulation needs to take will have detrimental impact on consumer choices and their access to professional advice.

A framework that encourages diversity of consumer choices, and competition within a level playing fi eld will go a long way toward supporting savings and market ef- fi ciency in Canada. Unfortunately, the evolution of the securities regime and controlling efforts by self-regulatory organizations are threatening the small, independent advisor channel with little proven investor benefit.

The recent foray by the Investment Industry Regulatory Organization of Canada into regulating fi nancial planning through detailed rules and dealer oversight is a classic case study in the scant regard given to broad implications for market participants. While setting profi ciency standards for fi nancial planners is desirable to help consumers assess individual competencies, dealer oversight of fi nancial planning is a direct blow to advisor professionalism—and brings with it tremendous compliance costs.

The proposal is ill-conceived on many fronts.

It tilts the playing fi eld in favour of vertically integrated fi nancial institutions with an employeremployee business model, as it’s in their interests to have mandated supervision of fi nancial planning activities that apply equally to all. This forces an unfair compliance regime on the independent dealer- advisor channel.

It also creates a confl ict of interest, preventing objective fi nancial advice, and compromising independence and client-advisor confi – dentiality. It encroaches on aspects of fi nancial planning entirely outside the realm of the investment regulator, such as risk management and insurance planning. It further risks reducing consumer access to professional advice by threatening to drive out independent planners.

The rationale for this regulation is that none currently exists. But such boilerplate justifi cation without a robust cost-benefi t analysis is grossly insuffi cient for an initiative that promises to reshape the industry. Unchecked infl uence on market participants and consumer choice, without an underlying public policy objective—typically the realm of governments, not regulators—is unwise. Today’s regulatory development process is fundamentally fl awed due to its narrow focus and utter disregard of broad implications.

It stands in sharp contrast when you compare it to the insurance regulators’ product suitability principle—the recommended product must be suitable for the needs of the consumer, that’s it.

As regulatory creep raises signifi cant barriers to entry for new advisors, the independent, small business channel is at serious risk of disappearing. The end result will be deterioration of consumer access to a range of fi nancial advice, products and services. Policy makers need to set broad parameters to ensure regulation accommodates diverse business models to serve the fi nancial needs of Canadians. The alternative is a severely underserved consumer.

Originally published in Advisor's Edge