What to expect as title regulation extends to Ontario

If you work in Ontario and call yourself a financial planner or financial advisor, you’ll soon have to back up your title with credentials from an approved body—or drop the title.

Ontario’s Financial Professionals Title Protection Act received royal assent in May, and will be overseen by the Financial Services Regulatory Authority of Ontario (FSRA). The act restricts the titles “financial planner” and “financial advisor” to those who obtain certain credentials from approved bodies, with details to be determined in forthcoming regulations (as of press time).

Until such time, consider that Quebec’s regulation of “financial planner,” which came into force in 1998, necessitated broad title restrictions. That included the title financial advisor (spelled with either an o or an e), which was deemed too similar to financial planner. No one in Quebec can call themselves a financial advisor; nor can they be financial consultants, financial co-ordinators, personal finance consultants or private wealth managers, among other titles.

Instead, advisors without the province’s financial planning license go by titles such as “investment advisor” (for Investment Industry Regulatory Organization of Canada [IIROC]-registered advisors), and the regulated titles “mutual fund dealer representative” (for those selling mutual funds) and “financial security advisor” (for those who advise on insurance for individuals).

Though Ontario will keep “financial advisor,” its title regulation will also result in restrictions, as the act says no one can use a title “that could be reasonably confused with” financial planner or financial advisor. For example, terms combined with “planner,” like wealth planner or retirement planner, were floated as prohibited titles in a 2018 consultation paper that preceded Ontario’s new law.

The question remains of whether financial planning and financial advising can be clearly defined and easily understood by clients. The distinction between the two, along with other title-related impacts in Ontario and Quebec, is important because other parts of the country could follow suit.

“The other provinces and territories may decide to enact similar laws, and there likely will be pressure from all stakeholder groups to do so,” says Neil Gross, chair of the Ontario Securities Commission’s Investor Advisory Panel.

How title regulation works: Quebec versus Ontario

To use the financial planner title in Quebec, you must have a bachelor’s degree, complete a university-level personal financial planning program approved by the Institut québécois de planification financière (IQPF), pass the four-hour in-class IQPF exam, and apply for and receive a licence by the Autorité des marchés financiers (AMF). (An alternative to the IQPF’s program exists for candidates with an equivalent combination of university education, professional titles and experience.)

Through legislation overseen by the AMF, financial planners must meet continuing education requirements and comply with codes of conduct and ethics. They’re also subject to fines (capped at $50,000 per offence) and disciplinary measures for misconduct. This oversight is delegated to la Chambre de la sécurité financière (CSF), a self-regulatory organization that oversees planners as well as mutual fund, insurance and scholarship plan reps.

As of June 30, the CSF supervised 4,564 financial planners, an increase of 82% over the last two decades and representing about 15% of the CSF’s registrants.

Most planners (about 85%) are also registered to sell mutual funds, insurance or scholarship plans, and the CSF’s multidisciplinary oversight results in efficiencies. “If an advisor engages in misconduct in insurance or financial planning, this same person will have his or her other certifications revoked simultaneously, therefore preventing this advisor [from] pursuing misconduct elsewhere,” the CSF says.

The IQPF is the only organization in Quebec authorized to grant financial planning diplomas. It’s a partner to FP Canada, which certifies financial planners with the CFP (Certified Financial Planner) designation.

Ontario’s title protection act will give more oversight to credentialing bodies than the IQPF has. While the FSRA will create the terms and conditions with which approved credentialing bodies must comply, those bodies will be responsible for overseeing the professionals they qualify. Those who obtain approved credentials must subsequently keep their credentials in good standing with the corresponding bodies as a way to continue using the “financial planner” or “financial advisor” titles.

The act says that disciplinary processes will be a key criterion for any credentialing body in receiving FSRA approval. Criteria for credentials will include a code of ethics and standards, which the bodies will oversee and enforce.

The FSRA says details about its oversight role, and that of the credentialing bodies, have yet to be fully determined and that it will consult with stakeholders.

“Certainly, the credentialing bodies will not just be educational institutions handing out diplomas or certificates and then walking away,” wrote Karen Bernofsky, an associate at Affleck Greene McMurtry in Toronto, in a June blog post. “They will have continued oversight, more like a regulatory college.”

Such oversight could go national. While that might help professionalize the industry, it also raises regulatory concerns.

For example, a credentialing body can’t issue fines as does a regulator, says Marie-Noëlle Savoie, vice-president, private client group compliance, at Raymond James in Vancouver. If someone opened a financial planning shop in Ontario and was disciplined for misconduct by a credentialing body, a concern is whether they’d simply be stripped of their credential, she says.

In an interview, Bernofsky said the act doesn’t seem to provide a way for the FSRA to designate the issuing of fines to credentialing bodies; the FSRA itself will have that power, with ultimate responsibility for compliance orders resting with its appointed chief executive officer.

Overall, Savoie considers Quebec’s regulatory approach to titles a robust one, with only one credentialing body (Ontario could have multiple) and multi-disciplinary oversight that ultimately rests with the AMF. A question is whether Ontario’s regime goes far enough, she says; however, with most planners having other registrations, any misconduct might be caught by the self-regulatory organizations IIROC and the Mutual Fund Dealers Association of Canada (MFDA).

In Quebec, CSF oversight across registration categories provides harmonization, says Maxime Gauthier, chief compliance officer at Mérici Services Financiers Inc. in Sherbrooke, Que., but regulatory structure is continually debated, and no regulatory model is perfect. (Last year, Quebec scrapped plans to roll the CSF into the AMF.) Multiple regulators can work, assuming communication processes are efficient, he says.

To-may-to, to-mah-to: planners versus advisors

Experts in Quebec question the regulation of “financial advisor.” The public would confuse “financial planner” with “financial advisor,” says Michael Garellek, a partner at Gowling WLG in Montreal. Likewise, Jocelyne Houle-LeSarge, IQPF president and CEO, says having both terms would confuse the public and that “advisor” is a generic term that applies in numerous contexts.

Even industry participants might not accept a delineation of financial planning and financial advising. Gross has warned that advisors with no planning credentials, including insurance advisors, might argue they should be accredited as financial planners because their suitability obligations include financial planning elements (assessing investment objectives, risk tolerance and so on; see “Financial planning and the courts”).

When asked if Ontario could be moving toward minimum credentialing standards, Gross says not if advisors are required to “up their game from the suitability standard to a best interest standard and demonstrate full proficiency in order to gain accreditation as financial planners.” (The IQPF and FP Canada have a code of ethics that requires planners act in clients’ interests.)

Being exempt from demonstrating full proficiency would “degrade the professional standards for financial planning while also perpetuating the suitability standard,” Gross says, “thereby inhibiting the much-needed evolution of financial advisors from salespeople into true financial professionals.”

Clients expect professionals to advise them objectively and with integrity, free of conflicts, Gross says. “When it comes to investments or financial matters, only those who are in a position to be objective and who submit to an obligation to give advice in their clients’ best interests should be permitted to call themselves investment advisors, financial advisors or financial planners,” he says. Those who are remunerated based on product sales should be restricted to calling themselves salespeople, he adds.

As such, even planners themselves might have to make a case to claim the regulated title. In its comment letter to the Ontario Ministry of Finance last year when title regulation was still under consultation, FAIR Canada called out planners who sell products at a firm with a limited product shelf. For example, a planner at a bank who gets paid according to a grid that incents the sale of proprietary products shouldn’t be able to use “financial planner,” FAIR Canada said. The organization wants the title to be restricted to those who are fee-for-service and don’t receive compensation for product sales or referrals.

Quebec’s rules don’t distinguish between commissioned and fee-based financial planners.

The planner/product distinction might also be important more generally. Clients may realize at some point that they have financial products but no plan. In contrast, Gauthier says some clients in Quebec are now so familiar with “financial planner” that they request one even when what they really want is a product. Understanding the difference would help clients make financial decisions, like choosing a professional, and to assess costs for what they receive.

Many advisors, as evident in media commentary and regulatory consultations, advocate for a best interest standard, alongside Gross and FAIR Canada (see “Setting a higher standard: Can advisors self-select as fiduciaries?”). The Canadian Securities Administrators dropped such a standard in favour of proposed client-focused reforms. In Quebec, regulation already has best interest language, in addition to requirements to act with honesty, loyalty, competence and professional integrity.

Provision 19 of the CSF’s code of ethics says registrants “must subordinate [their] personal interests” to those of clients or potential clients. In fact, the CSF compares itself to a professional order and is viewed as such by the industry. CSF registrants are “bound by professional obligations, and must look out for their clients’ best interests just like other professionals do, like physicians or lawyers,” says Marie Elaine Farley, president and CEO at the CSF. “Thus, recommendations and advice on purchasing financial products or services, such as financial planning, must serve the clients’ interests above all.”

Whether those obligations hold in court remains a question, but their articulation reflects the growing desire for greater professionalization within financial services.

Financial planning and the courts

In addition to providing clarity to clients, defining the practice areas of a regulated sector is important for the complaints process against advisors, for courts, and for errors and omissions (E&O) insurers, says Christopher Richter, a partner at Torys in Montreal. Though he’s confident in Quebec’s current system, Richter feels that defining the practice areas of financial planning would be a key task if financial planning was ever to become a legal profession, like those of doctors or accountants.

Jocelyne Houle-LeSarge, president of the Institut québécois de planification financière (IQPF), which grants the financial planning diploma required in Quebec to use the title “financial planner,” says the institute has been working for years to have financial planners recognized as a legal profession and will continue to do so.

Though the IQPF has established that certain fields of interest pertain to financial planning, the question can arise about what the obligations are for someone who advises a client, particularly if that someone has a dual designation. “At what point must they provide all the services of a financial planner if they are certified as a financial planner?” Richter says. For example, is talking with a client about appropriate life insurance, given their succession plan and life circumstances, part of financial planning or product advice? With such potential overlap, “there’s always a grey line,” he says. “It’s not a clear demarcation.”

While Richter isn’t aware of a court case to distinguish financial planning, “it’s something that clients have to deal with regularly and call us about,” he says, referring to title regulation. An example is when firms publish pamphlets about services, which might suggest financial planning services and so require an Autorité des marchés financiers (AMF)-licensed financial planner. That’s not typically a problem for integrated advisory teams that include planners, but the match might be murky at the margins, where a firm starts to expand its services, he says.

Michael Garellek, a partner at Gowling WLG in Montreal, says identifying business cards with titles falling afoul of regulation was part of his past job as an AMF examiner for mostly MFDA firms.

To assess nuanced situations for a firm, Richter said he determines whether advice is related to several elements of a client’s situation or is product-focused. “The more general it is in terms of the person’s financial situation, then the more likely it is that it’s financial planning,” he says.

Clear definitions would also help where E&O insurance comes into play. For example, when a client complains about a planner and seeks compensation, E&O insurance would cover services that fall under financial planning but not those where a planner, who isn’t securities-registered, acted as an investment advisor under the Securities Act.

While “those are fact-specific situations,” they illustrate “where that grey line becomes important,” Richter says.

Garellek says that, while Quebec’s title regulation hasn’t been used in enforcement proceedings, at least to his knowledge, “there’s always a possibility that failure to comply with the regulation under the Act [Respecting the Distribution of Financial Products and Services] would entitle the AMF to impose a penalty against the firm.”

Setting a higher standard: Can advisors self-select as fiduciaries?

The Certified Financial Planner (CFP) designation is often touted for the principles of its credentialing body—in Canada, that’s FP Canada—which include putting clients’ interests first, along with disclosing and resolving conflicts in the client’s favour. But can CFPs say they have a fiduciary duty to clients?

FP Canada says that doing so would be “technically” incorrect.

“Some statutory professions (i.e., professions that are recognized in law) owe a fiduciary duty at law—for example, lawyers,” an emailed statement from the professional body says. “Generally speaking, professional financial planners like CFP professionals do not have a statutory (legal) fiduciary duty to their clients.” An exception is portfolio managers, who have discretionary authority over clients’ accounts and a corresponding fiduciary duty.

Because they don’t owe a legal fiduciary duty, CFPs who want to hold themselves out as fiduciaries would likely find little support—at least from their compliance departments.

“As both a CFP and an IIROC registrant, I attempted to self-select being held to a fiduciary standard […] but I was precluded from doing so by my previous employer,” wrote John De Goey, a CFP and chair of the FP Canada Research Foundation’s board, in his May 2016 submission commenting on policy recommendations to the Ontario government.

“I spoke with other firms and they would have done the same thing, so the experience I had was by no means unique to my employer,” wrote De Goey, who’s now a portfolio manager at Wellington-Altus Private Wealth Inc. in Toronto. His submission supported a statutory best interest standard for CFP professionals.

Rather than hold out as fiduciaries, FP Canada recommends that, to more accurately convey their “care and added value,” CFPs highlight the duty of loyalty in its Standards of Professional Responsibility, which includes client-first obligations.

Regardless of credentials or designations, advisors can be found to have a common-law, or court imposed, fiduciary relationship with clients. For example, FP Canada cites five interrelated factors that could trigger such a relationship: client vulnerability, trust, reliance, discretion and professional rules or codes of conduct.

The Investment Funds Institute of Canada offers an example of such a fiduciary relationship in its document “Fiduciary Duties and Financial Advisors”: “[A]n advisor-advisee relationship that would likely be found to be fiduciary in nature would be one where an elderly, unsophisticated client placed his or her retirement savings in the hands of an investment advisor to invest as the advisor deemed necessary to achieve certain investment objectives for the client (e.g., to provide income through retirement).”