I’ll bet you will be surprised to know that, for the most part, the practice of financial planning in Canada is not government regulated. Personally, I think that gap in regulatory oversight is pretty dumb.
Now, don’t get me wrong, there is certainly no shortage of regulations. But those regulations have to do with the sale of products, not financial planning. In other words, basically anyone can call themselves a financial planner. There is no competency exam, no experience requirement, no code of ethics, no mandatory errors and omissions insurance, no oversight. Nothing.
Literally someone can just hang out a shingle and call themselves a “financial planner.” And, some do exactly that. They could be a ditch-digger by day and a “financial planner” at night. Does that scare the pants off you? I think it should.
Now if someone is licensed to sell products, that’s a different story. There is significant regulation on the sale of financial products.
These regulations are invariably well intentioned, with the objective of protecting the well-being of the client. That’s a good thing. But generally these regulations have to do with the sale of product, not about who is qualified to call themselves a financial advisor, nor about the quality of the advice itself.
The Financial Advisors Association of Canada, more commonly known as Advocis, wants to raise the bar on professionalism. They want everyone who sells financial products to consumers to maintain ongoing membership in a recognized professional association that enforces a code of professional and ethical conduct, proficiency standards and continuing education requirements. They also want to make sure that anyone who calls themselves a financial advisor is qualified to do so.
Recently a Certified Financial Planner in Alberta met with his MLA to discuss the Advocis proposal to restrict the use of the term “financial advisor” to qualified practitioners. The MLA’s response floored me.
The MLA challenged the Alberta CFP to provide evidence that consumers are being hurt by people calling themselves advisors and selling inappropriate products. That blew my mind. My response was, “Let's start with Earl Jones. I'm stunned by the obtuseness. Does your MLA also want evidence that smoking is harmful?”
Earl Jones, as you may recall, was a fellow in Montreal who didn’t let the fact that he had no credentials or licensing stop him from calling himself a financial advisor. It also didn’t keep him from running a $50 million Ponzi scheme.
This lack of appreciation about the risk of having unqualified people calling themselves financial advisors is disturbing. Fortunately, there are a number of tools available for you to determine your advisor’s bona fides. And if Earl Jones’ victims had utilized these tools they might still have their money today.
So how do you know if the person who wants to manage your money has the right stuff? It’s not that hard to do a little research, actually. Even a simple Google search can reveal some interesting things.
The first thing that I would look for is a recognized professional designation. Personally, the one that I prize the most is the Registered Financial Planner designation. This is through the Institute of Advanced Financial Planners.
There a number of other designations that are worthwhile. The Certified Financial Planner designation is a good start. This one is through the Financial Planning Standards Council.
Both the IAFP (www.iafp.ca) and the FPSC (www.fpsc.ca) websites have some good information about what to look for in a financial planner, what kinds of questions you might want to ask when interviewing a financial planner, and a “find a planner” feature.
You can check on your advisors licensing and any disciplinary history through the provincial securities and insurance councils. The BC Securities Commission website is www.bcsc.bc.ca. The Insurance Council of BC website is www.insurancecouncilofbc.com. There is quite a bit of useful information on these websites, so poke around a bit.
So here’s the thing. Even if we eliminate the dramatic stories of $50 million frauds, there is a significant range of expertise, experience, credentials and ability amongst the people who want to be your financial advisor. So, before you write the cheque, why don’t you just take a few minutes to understand what it is that the person sitting across the table is able to do for you in order to help you reach your financial goals?
The opinions expressed are those of Brad Brain, CFP, R.F.P. CLU, CH.F.C., FCSI. Brad Brain is a Senior Financial Advisor with Manulife Securities Incorporated, in Fort St John, BC. Manulife Securities Incorporated is a Member of the Canadian Investor Protection Fund. Brad Brain can be reached at firstname.lastname@example.org.