Advocis calls for action on advisor incorporation

(March 8, 2004) Advocis says the Ontario government should give “immediate priority” to amending the Securities Act to allow incorporated securities salespersons. The recommendation comes in Advocis’s pre-budget submission, sent last week to the province’s finance minister.

Advocis says at least 70% of its members are licensed for both insurance and mutual funds or other securities. Ontario’s Insurance Act allows life insurance agents to incorporate, but corporation registration is not permitted under the Securities Act.

Mutual fund dealers have been paying sales commission to advisors’ personal corporations while regulators attempt to come up with a more permanent solution. The MFDA recently extended its suspension of a rule prohibiting such payments until the end of 2006. However, the current arrangement has caused serious problems with the Canada Revenue Agency (CRA), Advocis says.

“We have heard from our members that the CRA has reassessed them in amounts varying from $10,000 to $700,000,” the submission states. “There is no consistency in the CRA audits when corporate income is reassessed as personal; the tax-paying advisor may or may not be allowed to reallocate business expenses paid by the corporation to offset personal income.”

“There is an urgent need for action to move the solution forward,” Advocis says. “The result of this technical anomaly in the Securities Act is that with increasing frequency, financial advisors are being subjected to unnecessary financial harm, legal and accounting costs, disruption of service, uncertainty and waste of economic and legal capital.”

The provincial government should also pass legislation making professional accreditation a condition of practice, Advocis recommends, at the same time giving the accrediting bodies, such as the Financial Planners Standards Council and the CLU Institute, the authority to oversee the competency and market conduct of advisors.

Advocis says that while it supports many of the recommendations in the Ontario Securities Commission’s (OSC) fair dealing model — such as increased disclosure and improved transparency — it believes the current regulatory framework is outdated.

“The OSC seems to think that most advisors today are still employees of banks and securities companies, and therefore its model suggests that these firms should continue to be responsible for the market conduct of advisors,” the submission says. “The reality is that most advisors are now independent professionals. Most already belong to professional associations that oversee their conduct and set standards of practice.”

“Advocis believes that professional advisors, through their accrediting bodies, are far more qualified than the OSC (or the dealers, or the dealers’ associations) to judge competence.”

Advocis makes two other recommendations in its submission, calling on the province to continue eliminating capital taxes and to scrap retail sales tax on group health insurance premiums.

Click here to read the entire Advocis submission.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com