Investor advocates are criticizing Ontario’s financial regulator for approving an industry association for financial professionals as one of the organizations whose certifications will allow people to use the titles “financial adviser” and “financial planner,” saying the group doesn’t have enough of a track record of oversight.
Earlier this month, the Financial Services Regulatory Authority of Ontario (FSRA) authorized two organizations – FP Canada and the Institute for Advanced Financial Education (IAFE) – to permit individuals to use the titles “financial adviser” and “financial planner” if they hold certain certifications by either group.
Ontario was the first province outside Quebec to pass legislation regulating use of the titles under its Financial Professionals Title Protection Rule.
To date, FSRA has approved four credentials for individuals seeking to use the professional titles in Ontario – two from FP Canada and two from IAFE. FSRA says it expects to announce additional credentials in the coming weeks.
But several investor advocates have expressed concern with the existing certified life underwriter (CLU) designation, which has been approved as a credential for financial planners, and the professional financial adviser (PFA) designation, which was created in 2020 for people who wish to use the title financial adviser. The two designations are administered by IAFE, which is a subsidiary of Advocis, an industry lobby group that has about 17,000 financial adviser members.
Investor advocates say Advocis does not have the track record or independence to oversee credentials in the best interests of investors.
“Advocis has a lobby group for the industry, so in my mind that is a direct conflict of interest,” Harold Geller, a lawyer at MBC Law Professional Corp. in Ottawa who handles negligence and fraud cases, said in an interview. “They are essentially putting a fence around their members to protect their existing members, as opposed to putting a fence around legitimate financial advisers and financial planners.”
Mr. Geller said Ontario investors should not rely on these titles as “reflecting quality,” and he urges clients to be diligent when working with a professional.
“Last week’s announcement was a sad day for Ontarians,” he said. “There was an opportunity to provide the titles of financial adviser and financial planner with a mark of value and the opportunity has now been lost.”
Part of the problem, Mr. Geller said, is that organizations that apply to be credentialing bodies should have audit provisions and a history of enforcement that is transparent to the public.
“Advocis has no such history, so we have a black box, which is like a fox that has been licensed to watch the hen house,” he said.
Jason Pereira, a partner at Woodgate Financial Inc. and president of the Financial Planning Association of Canada, agrees with Mr. Geller on the group’s lack of enforcement history.
“Advocis fails to meet the criteria set out by the framework in the first place,” Mr. Pereira said in an interview. “You can argue that the individual courses do, if you draw the bar low enough, but one of the key criteria for any kind of credentialing body was enforcement and they have no enforcement history to speak of whatsoever.”
But FRSA’s executive vice-president of market conduct, Huston Loke, said FP Canada and IAFE will both be responsible for overseeing and enforcing the conduct of their credential holders who use either title, and there will be a robust supervision process and code of conduct.
“Every credentialing body has a link to a public list of approved credential holders where you can check and see the status of the individual you are dealing with so a consumer can make a good decision,” Mr. Loke told The Globe and Mail.
Advocis spokesperson Julie Martini said FSRA’s application and review process was neither “quick nor simple,” and the group stands “firmly behind the quality, breadth and depth of what these programs cover.”
Meanwhile, two of the country’s largest organizations that administer licences for many individuals who call themselves financial advisers have not yet applied to become credentialing bodies in Ontario.
The Mutual Fund Dealers Association of Canada (MFDA), a self-regulatory organization (SRO) that oversees about 90 mutual fund dealers, and the Investment Industry Regulatory Organization of Canada (IIROC), which supervises 170 investment dealers, are in the process of merging into a single SRO.
Laura Paglia, the new chief executive of the Investment Industry Association of Canada, says those who are licensed with the SROs should be exempt from the new rules, as the organizations already provide a comprehensive titling licensing framework.
“These individuals are required to put their client’s interest first,” Ms. Paglia said. “There is no need for the Ontario financial professional title framework for them or their clients, both of whom are being subject to more red tape and more costs.”
IIROC chief executive Andrew Kriegler told The Globe in an e-mail that “no decision has been made at this time” on whether IIROC will apply to be a credentialing body, while MFDA spokesperson Ian Strulovitch said his association continues to “review and discuss” the initiative.
The participation of the newly merged SRO would bring more confidence to the industry, says long-time investor advocate Ken Kivenko, president of Kenmar Associates.
“Both IIROC and the MFDA have enforcement powers that most other credentialing bodies do not,” Mr. Kivenko said. “If they want to investigate an adviser, they can ask for documents. They can impose and collect fines. They can remove them from the industry entirely if there is wrongdoing, not just remove the use of a title. Whereas these credentialing bodies, there isn’t a real enforcement power.”
Industry advocates have also flagged the new fees that will be charged for the use of either title, saying the increase in costs could have “unintended consequences” by discouraging investment professionals from obtaining the approved credentials, as well as costs being passed onto consumers.
FSRA must recover the costs associated with the startup of the new legislation – about $3.1-million – as well as the costs required to oversee the initiative on an annual basis, which has been estimated to be around $1.1-million a year.
The regulator has set a fixed annual fee for an approved credentialing body at $25,000, plus an additional “variable fee” that will be based on the number of individual credential holders.
“Where do you think that money comes from? We know those costs always filter down into the hands of investors,” Mr. Pereira said. “Unnecessarily raising the cost of education is never a good thing and basically disincentivizes anyone from pursuing that education further.”
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Clare O’Hara