I am not a crook: Advisor

(September 19, 2005) A panel discussion at the 85th Annual General Congress of Advocis-Toronto was supposed help establish “a framework for effective regulation,” but by the end of the talk, all the financial advisors in the room wanted to know was why regulators treat them like crooks.

Midway through the question and answer portion of the talk, a lone financial advisor walked down the middle of a packed conference room and confronted the panel. “Why is it that auditors with the MFDA to come into the honest business of honest business people and treat us like we’re crooks?” Many shared his frustration, judging by the roaring applause and some thumbs up from the crowd.

The advisor, who did not give his name, had four auditors from the Mutual Funds Dealers Association in his office for a week to investigate his books, even though he hasn’t had a single complaint. MFDA members were invited to the conference, but chose not to participate on the panel. The advisor went on to say that the MFDA told him they were not an association, but a regulator intent on cleaning up the mutual fund industry. “Clean us up from what?” he asked. “What have we done that’s so dirty?”

Indeed, few advisors have complaints against them. “Until we developed and implemented a complaints and settlements reporting system, there were only anecdotes, for those that argued that the industry was completely dishonest and those that thought there was no wrongdoing at all,” said Paul Bourque, senior vice-president of member regulation for the IDA. He points out that 93% of the 25,000 investment advisors in this country have never had a complaint lodged against them, and 5% have had only one complaint.

Bourque, in discussing his middle of the road opinion, said risk-based regulation is the only way to go in order to reduce the burdens of regulation. “It’s the simplest way to deal with real problems,” he says. Moreover, it is important to make sure the results are made public, and there are incentives to follow MFDA recommendations.

To his right sat Marsha Gerhart, senior legal council for the Ontario Securities Commission, who argued for extending regulation to the administrative aspects of the industry. On Bourque’s left, Advocis member Lawrence Geller took a page from the association’s own “Framework for Effective Regulation of the Delivery of Financial Services in Canada” discussion paper, saying there needs to be more accountability in the regulatory environment.

Geller also took the opportunity to remind the audience of financial planners about the consequences of not taking a more active role in their industry. “They are going to determine how you are regulated, by whom you are regulated; how you are paid; how much you can earn and how you disclose it.”

Victor Woodhouse, president of Advocis, stressed this same point before he introduced the members of the panel. “The greatest danger is to think everything will be ok,” he said. “There is a pressing need to get advisors involved in the industry.” This means more than simply signing a petition, he added, noting that participating on committees or drafting a well constructed letter to an editor are more effective agents for change.

The U.S. had all the resources it needed to deal with a disaster like Hurricane Katrina, but it didn’t matter after the storm hit because there was no clear plan to execute or command those resources effectively, says Woodhouse. Continuing with the metaphor, he warned that the industry isn’t ready to handle its own Katrina.

Grant Swanson, executive director of licensing and market conduct for Financial Services Commission of Ontario, rounded out the panel, but contributed few of his own words to the discussion, opting to read from a Canadian Insurance editorial instead.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com