Proposed IIROC rule too lax: FPSC

The Investment Industry Regulatory Organization of Canada’s proposed rule governing how its member firms supervise financial planning activities has drawn fire from critics, but even among those who support the measure, there are those who feel it could have been better written.

The Financial Planners Standards Council (FPSC) of Canada welcomes the proposed rule, in that its stated goal is to better protect client interests. The body, which governs the Certified Financial Planner (CFP) designation, had engaged the securities regulator from the outset, when IIROC’s predecessor, the Investment Dealers Association, embarked on the project in 2007.

“It’s not something that was unexpected,” says Cary List, president and CEO of the FPSC. “We knew what was coming and we knew what the contents would be, pretty much.”

While he maintains that financial planning should be seen as a distinct and separate professional service, List admits that the proposed rule recognizes the reality of the industry: That the vast majority of financial planners are conducting their business in the context of regulated aspects of the industry, to wit, sales of securities, mutual funds and/or insurance.

“They’re intertwined, and it’s very difficult to separate them out, so we do support the fact that IIROC has come out and said its members need to recognize that their reps are performing financial planning, which leads to investment advice, and that the member firms actually have to recognize the need for minimum standards of competence and adequate supervision of financial planning activities, which may ultimately lead to investment advice.”

Julia Dublin, a Toronto-based barrister and solicitor with Aylesworth LLP, doesn’t think the new rule will have much of an impact for IIROC advisors because the definition and proficiencies are so broad.

“If someone is calling themselves a financial planner and they are an agent of an IIROC member – and are therefore following the specific many-steps process and delivering the sort of self-funded pension – they will be required to have some kind of additional type of proficiency and some sort of compliance documentation process in place,” she says. “If you look at IIROC’s definition of fi- nancial planning, it’s not really a defi- nition of financial planning; it’s more like a marketing statement. It’s not, from the point of view of a lawyer, much of a definition.”

Dublin also points out that the proposed rule also grants exemptions to advisors who offer planning advice but specifically focus their business on investments. These types of advisors are not considered financial planners under the rule. “It carves out whatever an activity might be if it has to do with the sale of a product – so it kind of lets the big producers off the hook,” Dublin says.

However, it could be another story for IIROC-licensed advisors who have expanded their business into insurance or tax planning, says Prema Thiele, a partner at Borden Ladner Gervais in Toronto.

“What the regulators have found is that it’s very difficult to define what is ‘financial planning’, therefore very difficult to divorce those sorts of services that are provided by these types of firms,” she says. “Does it cover financial planning services outside of the securities universe of financial planning? I would say absolutely, because to me a financial plan is all of that. It talks about all sorts of different things. They certainly want the whole activity to come under this rule. That’s how I read it.”

List says that with the FPSC’s mandate focused on consumer protection in the financial services industry, they support anything that enhances such protection.

“We applaud IIROC for the initiatives they have taken, and what we think is a well-considered effort in that regard,” he says. “That said, we think they kind of missed the mark in a number of areas.”

What List finds puzzling is the list of credentials that IIROC suggested would be sufficient for a financial planner.

“We think they really missed an opportunity to recognize the true value of professional certification,” List says. “There are nationally and internationally accepted standards out there for what professional certification should look like. There’s an ISO standard, ISO 17024, which has been adopted as a national standard by the Standard Council of Canada, called CAN-P-9.” These standards require: • minimum levels of work experience • a standardized examination • continuing education; and • a code of conduct or ethics

“Rather than recognizing that, IIROC has simply listed four certi- fications that they believe meet their own requirements,” he says. “Several of them don’t necessarily have the components of what goes into true professional certification.”

As drafted, the proposed IIROC rule states:

“(a) While a Dealer Member is entitled to impose its own proficiency standards higher than those noted below, any of the following, as updated or replaced from time to time by the applicable educational and trade Associations or sponsoring organizations, may demonstrate proficiency: (i) Completion of the Canadian Securities Course and the Professional Financial Planning Course sponsored by the Canadian Securities Institute, or …”

The guideline goes on to list several of the top designations, including CFP, PFP, R.F.P., or Quebec’s Pl. fin. List says he is surprised that IIROC has set one course on a par with professional designations.

“We would suggest that no single course of study, regardless of how good it is, is a sufficient measure of competence to hold as a financial planner. That flies in the face of everything that professional certification is about,” says List. “The FPSC, for the CFP certification program, has over 30 approved providers of core education that meet our educational standards. IIROC singled out one. Education alone is not enough, and we think it’s inappropriate that they singled out a specific education path to demonstrate proficiency.”

He points out that even if a candidate completes a course, they must pass a standardized examination, and, upon completion, are then subject to the designation’s code of conduct and be required to maintain their professional development through continuing education.

“This is really to [offer] a framework for the providing of financial planning. That’s the whole sum of it,” says Richard Corner, vice-president of member regulation policy for IIROC. “There are no mandatory proficiency requirements, just a guidance note that has proficiency considerations listed.”

Yet, List maintains that the minimum requirements may not be suf- ficient.

“[I am] in no way suggesting anything negative about the Professional Financial Planning Course, but that alone as a minimal standard, we say, is far too low a standard to be a financial planner.”

What isn’t clear is how dealers will apply these proficiency guidelines. It’s conceivable that non-securities business such as tax and estate or insurance planning would fall under the tighter supervision of the IIROC dealer firm.IIROC says it is in no way expanding its jurisdiction beyond its membership. Nevertheless, Thiele suspects that other regulators and insurance advocacy groups may be looking for more clarification on the proposed rule during the comment period.