Accepting self-regulatory organization as credentialing body for financial advisors could put public at risk, say stakeholders
It’s been more than six months since the Financial Services Regulatory Authority of Ontario (FSRA) announced it was working to make the Canadian Investment Regulatory Organization – which was still named “New SRO” at the time – a recognized credentialing body for financial advisor title users in the province.
CIRO’s status as a CB has yet to be finalized, but stakeholders representing investors and the industry are voicing their concerns and opposition.
Cementing lower standards
“In some ways, it’s a good thing if CIRO becomes a credentialing body,” Ken Kivenko, president and CEO of investor advocacy group Kenmar Associates, said in a recent interview with Wealth Professional. “But the downside is that 75,000 mutual fund salespersons get the title.”
According to the Mutual Fund Dealers Association of Canada’s (MFDA) 2022 client research report, there are just over 77,000 MFDA advisors across Canada.
As Kivenko tells it, Kenmar Associates has seen countless cases over the years of everyday Canadians who were impressed by someone holding themselves out as a financial advisor, only to later realize that person was only a mutual fund salesperson.
“They’d say ‘I was impressed with his title. But after a year or two, I realized all they could do was sell mutual funds. They never gave me any tax advice,’” he said. “It slowly comes out, but only after they’re trapped.”
The Financial Advisors Association of Canada (Advocis) has responded even more critically. In a statement emailed to WP, it said:
“We are alarmed with the current title protection rule that puts the Ontario public at risk of poor financial advice from uncertified ‘financial advisors’ who lack the proper training to advise on many financial matters. CIRO’s licensees are allowed to enter the framework with only a sales license, raising safety concerns for families, businesses, and consumers entrusting their financial future to underqualified sales-focused ‘advisors’.
“Approving CIRO and its representatives to utilize the Financial Advisor title before conducting a thorough review and updating the financial advisor proficiency standards would effectively cement these lower standards in place,” Advocis said.
What’s a financial advisor? The law vs. the street
Underlying many of the concerns with CIRO’s potential entry as a CB is the question of what a “financial advisor” is.
Under Ontario’s Financial Professionals Title Protection Rule, financial planners set themselves apart from financial advisors by their ability to “[develop] and [present] an integrated financial plan for a client.”
And while financial planners in Ontario must be educated in estate, tax, retirement, and investment planning, as well as finance management and insurance/risk management, financial advisors need only be proficient in the specific products and services they provide. But according to Kivenko, retail investors expect more.
“If you have a little tax issue, need help with your tax return, or need help deciding whether you should take your RRSP early or not … That's what people think of as a financial advisor,” he said. “The normal retail investor is going to say ‘Oh, he’s a financial advisor. It’s not just going to be just about investments.’ But that’s what it is.”
One alternative that might potentially be worth exploring, Kivenko said, is to exempt CIRO from Ontario’s title protection framework, with conditions attached along with oversight by FSRA. A critical piece, he said, would be to apply a standard definition to CIRO financial advisors, which should be national in scope and supported by the CSA.
“What they [FSRA] could do is give CIRO an exemption to the act if they're allowed to,” he said. “They could add on the condition that they come up with a definition of a financial advisor that's acceptable to all the stakeholders.”
