Making sense of the “alphabet soup”

Canada’s advice credentials landscape, with its diverse mix of designations and organizations that provide them, has been criticized for its complexity.

Some industry experts see the “alphabet soup”—a catch phrase coined by one of Canada’s leading financial journalists to describe the multitude of symbols and letters dominating the designations space—as a barrier to understanding the role and value of financial advice credentials.

Coupled with a lack of clarity, this complex landscape may breed confusion among consumers—and even within the advisor community.

Making sense of the “alphabet soup” is essential to the future development of advice as a profession. How can designations be made clearer to those who provide financial advice and those who benefit from it? What role do designations play in helping to ensure advisors serve the best interests of their clients and operate in a professional and ethical manner?

While these questions continue to generate some lively debate, the financial services industry has an obligation to clarify the value and positioning of designations for investors, advisors and all market participants, within the context of the evolution of Canada’s advice landscape and the megatrends that have shaped it.

The Canadian landscape: the paradigm shift

Over the last few decades, Canada’s financial services landscape has undergone a radical transformation. The original “raison d’être” for the country’s investment industry used to be simple—to connect the supply and demand sides, or, in other words, those who had capital and those who were in need of it. The assumption, which probably was not that far off the mark, was that clients just wanted to make money. The concept of financial planning, as we know it today, did not exist, and, aside from the presumed singular goal of accumulating wealth, there were little, if any, discussions around investor needs.

One defining factor in the development of Canada’s financial services industry has been the country’s regulatory environment. Historically, the Canadian financial services landscape has been shaped by regulatory requirements addressing different levels of product risk. In our country, advisors are approved to deal in certain investment vehicles by acquiring licenses to sell specific products, through specific distribution channels. For example, one type of license is required to offer mutual funds, and yet another to sell stocks and bonds.

Over the last 20 years, however, there has been a shift in the mindsets and behaviour of industry participants from a dominant focus on products, as well as their associated risks and corresponding licensing requirements, to a growing emphasis on investor needs. Minimum regulatory standards for different financial roles have been raised over time to increasingly focus on what competencies within the advisor-client relationship are most critical, and to make sure advisors and other professionals have the knowledge, experience and ethical values needed.

There is also a growing realization among all industry participants that, above and beyond regulatory requirements, advisors should have a more sophisticated understanding and, in many cases, specialized expertise to support increasingly complex and diverse investor needs and investment products, and to address the challenges of an evolving Canadian market within today’s interconnected global economy.

An example of such specialized knowledge is the qualifications required to serve high-net-worth individuals. Affluent Canadians are looking for advice professionals who understand their more complex financial and non-financial needs, such as wealth preservation, tax and estate concerns, and business succession planning. These advisors must be able to play a quarterback role in bringing together a client’s tax and legal advisors to form a more holistic plan. Traditional, tactically-focused investment or financial planning services may no longer be enough for this expanding group of clients.

Another similar trend in this paradigm shift towards greater investor focus is the industry’s growing commitment to protecting them from the risks of insufficiently informed or unethical counsel, including situations that involve actual or perceived conflicts of interest. Regulatory and professional regimes focus on the issues—and solutions—surrounding advisor training and proficiency, client relationships and advisor duties, including enhanced suitability requirements, and compensation incentives that align the interests of advisors and investors (see “Professionalism and proficiency in the financial services industry: why it matters more than ever,” IIROC report for the 8^th annual conference of the Canadian Institute of Financial Planners, June 14, 2010.)

This paradigm shift has been driven by a number of social and economic trends:

• Investor needs are becoming increasingly complex and diverse, influenced by such factors as the aging population, changing family structures, culture, lifestyle, wealth levels and a greater propensity to save for future financial needs other than retirement.
• There is a growing number of small business owners, which often lends an added layer of complexity to an advisor’s assessment of a client’s financial situation.
• The financial services landscape has evolved. The industry has seen the amalgamation of distribution channels, financial exchanges now encompass traditional and alternative trading systems, and there has been a tremendous proliferation of new financial products for investors. Reflecting the increasingly complex nature of client needs and investment products, there continues to be a shift from transaction/commission-based business to advice/fee-based relationships.
• With industry and investor expectations growing, all within an environment of greater risk, advisors are increasingly expected to have a deeper and broader knowledge of their clients, as well as product and market dynamics, while assuming a more professional, holistic and consultative approach to managing client assets.
• Finally, the recent turmoil in financial markets spawns greater risk and less confidence towards markets and advisors.

Letters count: the professionalization trend

Increased investor expectations and industry complexity are spurring many advisors to go above and beyond the already rigorous regulatory and licensing requirements. This means upgrading their education and credentials to ensure they can meet ever-changing client needs and know your product requirements. This professionalization trend is driving a greater focus on stringent professional practice standards, codes of ethics, supervision and oversight for financial advisors, manifesting itself in several areas:

• As the industry is shifting away from a dominant sales culture towards one of professional advice, the focus across all financial advice disciplines is moving towards creating and managing long-term client relationships, using sophisticated financial planning and wealth management tools, and developing professional competencies that address the issues of suitability and risk.
• These competencies are increasingly demonstrated through financial advice credentials, in the form of specialized advice designations, which prove to clients that their advisors not only have the right experience and expertise, but also consistently conduct themselves in a professional and ethical manner.
• Financial advisors are willing to go beyond the regulatory requirements and commit to high professional standards, acquiring financial designations that meet the complex and diverse needs of their clients. The letters after their name mean a lot to them: advisors not only see themselves as professionals, but they also want their clients to see them in the same light.

Specialized advice designations

Supporting the complex and evolving financial needs of Canadians requires specialized knowledge and skills, as well as different proficiency and competency standards to define the type and level of expertise required for many financial services roles. This complexity is reflected in several specialized advice designations within the country’s financial credentialing landscape, ranging from basic financial advice for mid-range clients to more complex integrated wealth management and financial planning for high-net-worth individuals. CSI, for example, currently offers three advice designations that serve various investor profiles:

• The Personal Financial Planner (PFP) is an optimal program for advisors working with mid-range clients with more straightforward needs.
• The Chartered Strategic Wealth Professional (CSWP) designation supports the needs of wealth managers dealing with higher-net-worth clients and complex needs.
• The upgraded Chartered Investment Manager (CIM) designation, formerly known as the Canadian Investment Manager, gives advisors the ability to provide discretionary portfolio and investment management advice.

The absence of adequate information can make it challenging for advisors and other industry participants to successfully navigate the “alphabet soup” of advice designations, and understand the professional requirements and opportunities necessary to meet their client needs. As part of the solution, CSI has made strides in clarifying and distinguishing specialized designations, and has introduced resources to help financial advisors make intelligent professional development choices. For example, CSI’s new Financial Services Career Map provides a visual, interactive framework for exploring career options, and the different roles and credentials available in the financial services industry.

As the financial services industry – and investor needs – continue to grow more complex, and the expectations of advisors’ knowledge, qualifications, and client focus continues to increase, specialized advice designations could play an increasingly important role in meeting the needs of investors. In this light, it could be argued that the “alphabet soup” persists not because there are too many designations, but because the industry has yet to clearly demonstrate the points of differentiation and value that each designation brings to investors—especially in the context of the significant changes the financial services industry has seen in the last 20 years.

Dr. Roberta Wilton is President and CEO of CSI, Canada’s leading provider of financial services education. Prior to joining CSI, she operated her own company specializing in capital markets education and investor relations.