Industry needs to bring clarity to meaning of financial designations

By Susan Yellin | March 12 2013 08:49PM

It was in 1995 that Glorianne Stromberg, then a commissioner with the Ontario Securities Commission, recommended in a much-publicized report that a clear line be drawn between those selling financial products and those advising clients. At the same time, she called for increased proficiency and training standards to help them better serve the needs of investors.

Since then regulators have been unsuccessful in enforcing who can call themselves a “financial planner,” for example. And while it’s still not enforcing any rules, the Investment Industry Regulatory Organization of Canada (IIROC) has recently issued a proposed guidance note on best practices for firms on how to use business titles and financial designations.
Regulatory guidance note

The general purpose of the guidance note is aimed at ensuring transparency and a clear understanding of an advisor’s role. The regulator has called on its member firms to ensure that the titles their representatives use not be “confusing to the average investor and/or imply particular expertise or give rise to client expectations.”

For Ms. Stromberg, the issue of titles is of great concern. “The fact they haven’t come to grips with these designations has been responsible for a lot of misunderstanding in the minds of consumer investors. Investors really don’t know who they’re dealing with,” she said.

Ms. Stromberg said many of the current designations or titles advisors use indicate a strong advisory relationship that includes fiduciary obligations. “And in the end, you find out that really all advisors have been doing is selling you products. So I’m disappointed that this situation has been well recognized, not only by the regulatory people but by a lot of investment representatives that work in the industry – and they’ve done nothing about it. Then I read this request for comments rule notice by IIROC and it surprisingly indicates that there is very little oversight of it internally in the member firms.”

IIROC’s note follows surveys last year among its regulated firms and investors. The member survey indicates the use of a wide variety of business titles, many of which don’t provide a meaningful description of the services and products offered. For their part, most investors couldn’t recall the business title of their advisor or their designations.

The comment period for the IIROC note ended March 9. “As for [any] future steps, it is premature to determine what they may be,” added Paul Riccardi, IIROC senior vice president, Enforcement, Member Policy & Registration.

Cary List, president & CEO of the Financial Planning Standards Council (FPSC), said he is pleased a regulator is acknowledging there is an issue with titles and designations, but he doesn’t believe it’s enough to let dealers figure out what is fair and reasonable themselves.

Mr. List suggested that instead of a guidance note from IIROC, perhaps a statute be enacted, stipulating that only those who have a certain designation, such FPSC’s Certified Financial Planner (CFP),  be allowed to call themselves a financial planner.  That designation would come with a requirement for continuing education courses and be sanctioned by regulators, as is the case in Quebec.

“We are in complete agreement that titles are misleading,” said Mr. List. “The use of designations has become rampant and flippant and there is no consistency of what they mean. We believe it needs to go further than just guidance to dealer members of IIROC. It needs to be across jurisdictions, across provinces and across regulatory platforms.”
Difficult challenge

He acknowledged it’s a challenge to get different groups to act as a united front on how such a plan should work and suggested a sanctioned agency take the lead.

“Perhaps we should set up a task force that we would be delighted to participate in and leave it to a completely independent organization to head the charge.”

Greg Pollock, president and CEO of Advocis, the Financial Advisors Association of Canada, agreed that with the alphabet soup of designations getting longer, what’s really needed are some overall proficiency standards around designations, regularly updated education and training and adherence to a code of professional and ethical conduct such as Advocis’ Chartered Life Underwriter (CLU) program.

“We want to raise the professional bar and protect the wealth of Canadians by ensuring that when they turn to a financial advisor, they are turning to a person they can trust,” Mr. Pollock said. “If that trust is broken, we want Canadians to have a reliable course of action.”

When the proposed guidance note is finalized, IIROC says it intends to have a glossary of common financial designations and certificates on its website for easy access for investors.

The IIROC paper follows the release of a consultation paper by the Canadian Securities Administrators in October that looks at standards of conduct for advisors and dealers and opens the discussion on whether a statutory fiduciary standard is required in Canada – above and beyond suitability.  A number of other international jurisdictions have already done so.
Fiduciary responsibilities

Mr. Pollock said the public needs to know which designations carry fiduciary responsibilities.

“Portfolio managers are the status of fiduciaries, meaning they are individuals who have access and control over their clients’ assets, so the way they conduct themselves is going to be somewhat different than those who hold a CLU or CFP because in those cases they are not status fiduciaries. Whether they are operating as a fiduciary at the time will depend on the particular situation that they are in. But at the end of the day, a CLU and a CFP do not have control over their clients’ assets.”

In addition, someone with a Chartered Financial Analyst (CFA) designation usually deals with researching documentation of various companies to determine value and whether they are good investments and don’t usually meet with clients.

“I think there is room for specialization,” said Mr. Pollock. “We need to be clear with the public about what these different designations mean and how they can help different clients with their specific circumstances.”

Mr. Pollock notes that Advocis has long stated that members with a general designation, such as a CLU or a CFP, can’t give tax advice, for example, and that this information is better suited to be coming from a more knowledgeable chartered account or tax specialist. Many CFPs have discovered that working with “teams” of specialists makes good business sense and ensures the proper information is given to clients.