Open letter highlights flaws in province's title protection regime, airs concerns of 'race to the bottom' with credentialing bodies
When Ontario finally announced it was moving forward to implement the framework defined under the Financial Title Protection Act this past March, it was poised to become a model for other provinces also looking to regulate the use of financial advisor and financial planner titles.
But the province’s existing regime has failed to live up to those expectations, according to one investor advocacy group.
In an open letter, Kenmar Associates criticised the Ontario Financial Services Title Protection Act, maintaining that it fails to achieve “alignment between the expectations and needs of consumers and the professionalization and transparency of the financial services industry.”
Based on available evidence, the group said, the framework set out in the act falls short of defining strong and consistent criteria for financial advisors (FAs) and financial planners (FPs), or the credentialing bodies (CBs) approved to grant those titles in the province.
Read more: 'The title will mean something': Ontario confirms title protection regime
“We think of this as an unfulfilled promise of a regulatory framework that works in the public interest,” Ken Kivenko, President of Kenmar Associates, told Wealth Professional. “It certainly did not reflect the excellent work of the Expert Committee in 2016. It was a disappointment from the moment it was released.”
In its letter, Kenmar set out a laundry list of issues concerning the act and the FA title it defines.
It called out a possible “race to the bottom” as the CBs with the weakest enforcement and most permissive professional standards attract greater membership – a risk compounded by the fact that each CB is allowed to maintain its own code of conduct.
Since the framework was officially announced in late March, the Financial Services Regulatory Authority of Ontario (FSRA) has recognized three credentialing bodies for financial advisors: FP Canada; the Institute for Advanced Financial Education (IAFE), a subsidiary of Advocis; and the Canadian Securities Institute (CSI).
“The main problem is that we don’t know where FSRA is applying additional scrutiny or how they have visibility into the standards being applied,” Kivenko says, noting how most of the CBs approved have spotty or unproven track records. “They haven’t publicly released terms and conditions on any of their credentialing body or credential approvals – it has not been transparent.”
If Ontario’s financial regulator is asking CBs or credentials with weak practices and standards to improve over time, Kivenko says, investors would be happy to know. But the lack of visibility into the process, he says, points to a dilution of the act’s stated regulatory framework and principles.
“They need to demonstrate, particularly for the FA title, that there is a credible baseline standard being applied. Because in what’s been currently messaged and approved we can’t find it, calling into question the utility of regulating the FA title altogether,” Kivenko says.
Read more: Why provinces should follow Quebec, not Ontario, financial planner standards
The open letter argued that because the FP and FA proficiency standards essentially replicate existing SRO standards – conflating minimum requirements to sell a product with financial advice – they can effectively be a “rubber stamp” for those already registered with the existing self-regulatory organizations.
It noted that under recently enacted CFR rules, more than 100,000 registrants with the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC) are required to put clients’ interests first, and yet are not required to hold the FA title. Conversely, individuals recognized by a CB might not be registered, putting vulnerable investors in danger.
“Frankly, we see no business advantage for an IIROC registrant to spend a cent on acquiring the FA title,” Kivenko says. “What exactly is the difference between an FA and a registrant?”
While the act limits the use of the FP and FA titles, it doesn’t prohibit non-credentialled people from using other impressive-sounding and misleading titles, or stop them from offering services based on promises to perform work that involves financial advice, the letter added.
That feeds into concerns over FSRA’s lack of enforcement tools provided for under the act. The agency has the power to send compliance orders to individuals who falsely represent themselves as FPs or FAs, but has no teeth in terms of taking legal action or imposing monetary sanctions.
“Given the known and increasingly apparent deficiencies in the Act, we ask that the Government consider amendments that would allow title protection to at once make broad-based advice more accessible to more Ontarians and ensure that the providers of that advice have both the requisite proficiency and professionalism to protect consumers,” the letter concluded.
