Business 4039- Canadian Financial Institutions


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Business 4039- Canadian Financial Institutions

  1. 1. Business 4039- Canadian Financial Institutions Term Paper Presentation Joe Sgambelluri November 30, 2007
  2. 2. This presentation will begin with a short film Enjoy!
  3. 3. Research Objective <ul><li>Should financial planning be regulated in Canada in order to protect the public interest? </li></ul>
  4. 4. Agenda <ul><li>Explain what is financial planning </li></ul><ul><li>Model in Quebec (Provincial Regulation ) </li></ul><ul><li>Initiatives in British Columbia (Co-Regulation) </li></ul><ul><li>Impact of regulation on financial planning </li></ul><ul><li>Financial planning becoming a Self-regulating profession </li></ul><ul><li>The Role of Government </li></ul><ul><li>Conclusions </li></ul><ul><li>Questions </li></ul>
  5. 5. Regulating Financial Planning <ul><li>Currently, financial planning in Canada is not nationally regulated, </li></ul><ul><li>Create standards of competency and ethical behavior that define the profession of financial planning. </li></ul><ul><li>Canadians can look to the a professional designation as a mark of quality and professional integrity. </li></ul>
  6. 6. Confusing Titles…. <ul><li>What's your definition of a </li></ul><ul><li>&quot;financial advisor”, ? </li></ul><ul><li>“ financial planner”, ? </li></ul><ul><li>“ financial consultant” ? </li></ul>
  7. 7. Initial Confusion??? <ul><li>Certified Financial Planner, CFP </li></ul><ul><li>Chartered Life Underwriter, CLU </li></ul><ul><li>Canadian Investment Management, CIM </li></ul><ul><li>Registered Financial Planner, R.F.P. </li></ul><ul><li>Chartered Accountant, CA </li></ul><ul><li>Chartered Financial Consultant, CH.F.C </li></ul><ul><li>Personal Financial Planner PFP </li></ul>
  8. 8. Initial Confusion??? <ul><li>These are all titles that a consumer can find in the Yellow pages, to describe people who may provide financial planning services . </li></ul><ul><li>Is there any doubt then, why consumers are so confused especially in this era of financial scandals? </li></ul><ul><li>Consumers want trustworthy assistance more than ever when buying mutual funds, seeking help with tax or estate planning, choosing life insurance or establishing a retirement package. </li></ul><ul><li>Does the public even know what the designations on the financial planner's business card mean? </li></ul>
  9. 9. Regulating Financial Planning <ul><li>Financial Planning and Financial Planner are among the most commonly used and misused terms in financial services today. </li></ul><ul><li>Someone who works as a mechanic could hang a &quot;financial planner&quot; sign outside their door and start charging an hourly fee to provide consumers with advice. </li></ul><ul><li>This poses a problem to the public who have trouble identifying competent, ethical financial planners. </li></ul>
  10. 10. What is Financial planning? <ul><li>Financial Planner Standards Council (FPSC) defines personal financial planning as the process of creating strategies, considering all relevant aspects of the clients financial situation, to manage financial affairs to meet life goals. </li></ul>
  11. 11. What is Financial planning? <ul><li>The FPSC defines FP as the integration and interdependence of 6 key elements: </li></ul><ul><li>Financial management </li></ul><ul><li>Risk management </li></ul><ul><li>Retirement planning </li></ul><ul><li>Estate planning </li></ul><ul><li>Asset management </li></ul><ul><li>Tax planning </li></ul>
  12. 12. What is Financial planning? <ul><li>These element are what distinguish financial planning from other forms of financial advice </li></ul><ul><li>There is a general lack of public awareness in terms of what is financial planning </li></ul><ul><li>A situation where people do not know or cannot agree on what financial planning is </li></ul><ul><li>This raises the issue then how do you license it or regulate it from a government stand point. </li></ul>
  13. 13. <ul><li>This definition also picks up on the need to recognize interrelationships between one component of financial advice and another. </li></ul><ul><li>i.e. making investment decisions versus the trade-off of paying your mortgage versus saving for your kid’s education. </li></ul><ul><li>Human nature for consumers to deal with the “here and now” </li></ul>Why is Financial planning important?
  14. 14. Why is Financial planning important? <ul><li>For example, the decision of the consumer to invest money into RRSP during RRSP season versus how much money he need to take out for a loan to make renovations to his home. </li></ul><ul><li>However, the risk of this, and that decisions are often made in isolation and may seem reasonable in isolation but they may be unreasonable and inappropriate decisions when taken as part of the big financial picture. </li></ul>
  15. 15. Recent Survey…. <ul><li>An Investment Executive survey of 1,727 financial advisors indicated that barely half or 56% had any designations besides their product licenses (2007 September). </li></ul><ul><li>Product license are granted by MFDA and IDA </li></ul>
  16. 16. Financial Regulation in Quebec <ul><li>In 1989, Quebec's financial services industry faced many, challenges. </li></ul><ul><li>An ever-changing and increasingly competitive industry had created a deluge of financial professional titles </li></ul><ul><li>Making it difficult for the Quebec consumer to determine which title signified credibility and integrity. </li></ul>
  17. 17. <ul><li>This prompted the introduction of Bill 134, which recognized only the Financial Planner designation, P1. Fin., from the Institut Quebecois de Planification Financiere (IQPF) as a recognized designation for those calling themselves financial planners. </li></ul>
  18. 18. <ul><li>Quebec is the only province that currently tracks and regulates financial planning </li></ul><ul><li>Institut québécois de planification financière, (IQPF) is the organization that oversees the financial planning courses that Quebec universities offer. </li></ul>
  19. 19. <ul><li>Academic Requirements. </li></ul><ul><li>Candidates must first acquire two certificates in one of four disciplines: actuarial studies, economics, law or administration. </li></ul><ul><li>Then they have to complete a certificate in financial planning offered by a Quebec university some 450 hours of training, usually finished in a year. </li></ul>
  20. 20. <ul><li>Candidates then must take a 45-hour summary course before they can write the uniform exam </li></ul><ul><li>a license to practice is conferred by the Bureau des services financiers (BSF), </li></ul><ul><li>BSF is the Quebec’s regulatory body. </li></ul>
  21. 21. <ul><li>Practitioners must complete at least 60 hours of compulsory professional development every two years. </li></ul>
  22. 22. <ul><li>The BSF isn't the only regulatory body in this rigorously regulated climate. </li></ul><ul><li>The following six professional orders: </li></ul><ul><li>lawyers, </li></ul><ul><li>notaries, </li></ul><ul><li>chartered accountants, </li></ul><ul><li>certified management accountants, </li></ul><ul><li>certified general accountants </li></ul><ul><li>and certified administrators </li></ul>
  23. 23. <ul><li>Signed an agreement with the BSF on the rights and responsibilities of financial planners, as authorized by the Act respecting the distribution of financial products and services. </li></ul>
  24. 24. <ul><li>According to the act, these regulators are required to maintain rules that are at least as stringent as those applicable to financial planners holding a certificate. </li></ul>
  25. 25. <ul><li>The act also places radical restrictions on the use of the title of financial planner. (The confusing titles found elsewhere in the country) such as: </li></ul><ul><li>chartered financial planner, </li></ul><ul><li>financial adviser, </li></ul><ul><li>personal finance consultant </li></ul><ul><li>Use of these titles are simply not allowed. </li></ul>
  26. 26. <ul><li>A Quebec financial planner must demonstrate a high degree of transparency. Any new service provided to a client must be specified in a written agreement describing the </li></ul><ul><ul><li>nature and scope of the proposed service, </li></ul></ul><ul><ul><li>a fee estimate, </li></ul></ul><ul><ul><li>a list of all the sectors in which the planner is authorized to act </li></ul></ul><ul><ul><li>a description of the financial products and services that are likely to be offered under the mandate. </li></ul></ul><ul><ul><li>The client must sign this document after which he or she is entitled to receive a written financial-planning report. </li></ul></ul>
  27. 27. <ul><li>Other sections of the regulations require the planner to indicate the source of statistics quoted in his representations and take out a minimum professional liability insurance of $1 million annually. </li></ul>
  28. 28. <ul><li>The BSF oversees an insurance information and referral centre that receives complaints from customers made against firms and representatives. </li></ul><ul><li>a fund was created to compensate victims of fraud, special provisions to protect confidential client information </li></ul>
  29. 29. <ul><li>An employer liable for the actions of their representatives, whereas previously the liability lay with the employee. </li></ul><ul><li>Increased pressure to ensure that licensed brokers are following compliance rules and meeting their clients' needs. </li></ul><ul><li>With the firm bearing the responsibility for any wrongdoing of a representative, the bottom line is: get the best people possible to provide the best service to our clients </li></ul>
  30. 30. Initiatives in British Columbia <ul><li>In August 2001 the Insurance Council of British Columbia addressed the use of terms such as Financial Planner, Financial Advisor or similar types of titles (“Financial Planner”) by life insurance agents. </li></ul>
  31. 31. <ul><li>Set out the appropriate qualifications required to hold oneself out as a Financial Planner. </li></ul><ul><li>Council finalized its policy on life insurance agents holding themselves out as a Financial Planner, or providing financial planning advice. </li></ul><ul><li>Council has established criteria, on the appropriate level of experience and education necessary for a life insurance agent to hold him or herself out as a Financial Planner. </li></ul>
  32. 32. <ul><li>The objective of these recommendations is twofold: </li></ul><ul><li>To establish minimum standards, based on industry feedback, that a life insurance agent needs before using a Financial Planner title, and </li></ul>
  33. 33. <ul><li>2. Where a life insurance agent does not meet those requirements, but believes he or she is qualified through equivalent education and experience, establish basic disclosure guidelines (to be provided to a client prior to transacting business) that provides an accurate and complete description of the life agent’s education and experience . </li></ul>
  34. 34. <ul><li>This will allow a client to make an informed decision regarding the life insurance agent’s financial planning experience before commencing a business relationship. </li></ul><ul><li>For existing clients, this disclosure should be provided by the agent at the time of next contact with the client. </li></ul>
  35. 35. <ul><li>REQUIREMENTS FOR INSURANCE AGENTS TO HOLD OUT AS FINANCIAL PLANNERS </li></ul><ul><li>Life insurance agents who use any one of the following titles: </li></ul><ul><li>Financial Planner; </li></ul><ul><li>Financial Advisor; or </li></ul><ul><li>Financial Consultant; OR, </li></ul><ul><li>hold themselves out as providing the following services: </li></ul><ul><li>Financial Planning; </li></ul><ul><li>Financial Consulting; or </li></ul><ul><li>Financial Advising; OR, </li></ul>
  36. 36. <ul><li>otherwise purport to be a financial planner or provide financial planning advice, must meet the following qualification and disclosure criteria. </li></ul>
  37. 37. <ul><ul><li>Successful completion of: </li></ul></ul><ul><ul><li>i) the qualifying courses and Professional Proficiency Examination offered by the Financial Planners Standards Council (CFP); </li></ul></ul>
  38. 38. <ul><li>Under Part 4.6 of the British Columbia Securities Commission's Policy 31-601, those who are licensed to sell investments may not use the &quot;financial planner&quot; handle unless they have (CFP) designation </li></ul><ul><li>Or have obtained one of the listed equivalent credentials </li></ul>
  39. 39. Professional Financial Planning Course Canadian Securities Institute (or fellow of the CSI) RFP Canadian Association of Financial Planners CLU Canadian Institute of Chartered Life Underwriters and Chartered Financial Consultants Chartered Financial Planner Canadian Institute of Financial Planning CA Chartered Accountant Institute of Chartered Accountants of British Columbia P.F.P. Institute of Canadian Bankers CMA Certified Mgmt Accountant Certified Management Accountants Society of British Columbia or of the Canadian province or territory in which the applicant is resident CGA Certified General Accountant Certified General Accountants Association of British Columbia or of the Canadian province or territory in which the applicant is resident CFA Chartered Financial Analyst  Association for Investment Management and Research
  40. 40. Co-regulation <ul><li>Regulators of financial products and services such as the British Columbia Securities Commission have begun to recognize the importance of financial planning. </li></ul><ul><li>However, they do not feel they have the expertise or desire to directly oversee or regulate it directly. </li></ul><ul><li>Co- regulation allows the regulator to maintain some oversight over the individual who is registered with them but they defer the standard-setting activities and the certification to the Financial Planner Standards Council. </li></ul>
  41. 41. Financial Planning as a Self-Regulating Profession <ul><li>By carving financial planning off as a self-regulating profession as opposed to adopting it as a co- regulatory function within an existing regulatory regime you risk adding an additional layer of regulation that is actually not achieving anything </li></ul><ul><li>Greater risk of overlap if certified financial planning become a self-regulating profession and start regulating financial planning as if it were entirely independent from the community of financial advisors out there who are licensed to sell product. </li></ul>
  42. 42. Common Licensing and Educational Standards  <ul><li>Competing standards is not necessarily harmful. </li></ul><ul><li>Where it becomes harmful, is if they are actually competing standards that are trying to suggest that they are appropriate standards but they are different standards. </li></ul><ul><li>The accounting profession is a perfect example. </li></ul><ul><li>The CGA, CA, CMA have tried numerous times to merge and come together under one umbrella because they understood inherently that it is in the public interest to do so. </li></ul><ul><li>However, you have to ensure that whoever is setting the standard is always kept on their toes so that the standards are sufficiently high to satisfy the public need </li></ul>
  43. 43. The Role of Government <ul><li>One of the positive things that can be said about governments is that they do not want to regulate what they don't need to regulate or they don’t see as requiring regulation. </li></ul><ul><li>Our social-economic capitalist system also discourages undue intervention by governments. </li></ul><ul><li>See more regulation in the healthcare industry because government regulation tends to be based on if there is deemed to be sufficient risk to the public </li></ul><ul><li>Or the open market system is not doing an adequate job at self-regulating itself. </li></ul><ul><li>So governments in English Canada don't see that there is a disservice being perpetuated on Canadians. </li></ul>
  44. 44. How provincial jurisdiction an impediment to the licensing process/ regulation/ policing?; <ul><li>Clients of financial planners are mobile. </li></ul><ul><li>This is a big reason why we need a regulated national standard for financial planning. </li></ul><ul><li>CFP professional can't work with a single regulator they have 26 regulators </li></ul>
  45. 45. What is the impact of regulation on human resource management requirements? <ul><li>Expectation of having a certified professional on staff to conduct file reviews. </li></ul><ul><li>Financial Institutions fully reimbursing employees who are working towards their certified professional designation. </li></ul><ul><li>Financial Institutions may award salary increases for attaining a certified professional designation not just on their volume of business </li></ul>
  46. 46. What exactly is an Financial planner? <ul><li>Is a planner a professional: like a doctor, lawyer or accountant? </li></ul><ul><li>Or is an planner a salesperson, like a real estate agent or a stock broker? The financial services industry’s governing bodies are trying to move planners toward the former and away from the latter. </li></ul>
  47. 47. A quotes to remember…. <ul><li>“ If you do what’s right for your client before you do what’s right for your wallet then your wallet will always be full”. </li></ul><ul><li>“ The most important aspect of this business </li></ul><ul><li>(financial planning) is trust… and that’s not something you can regulate”. </li></ul>
  48. 48. Conclusion <ul><li>I support the mandate in establishing and enforcing uniform professional standards for financial planners because the public interest would be best served if those working in the financial planning field had access to a single, internationally recognized professional designation </li></ul><ul><li>I support a co-regulatory regime between product dealers and a national self regulating certifying financial planning body </li></ul>
  49. 49. Conclusion <ul><li>Today, there is still a lack of acceptance of financial planning as a service worthy of out-of-pocket expenditure by the client. </li></ul><ul><li>There are many individuals who have not bothered getting any accreditation beyond their product licensing. </li></ul><ul><li>For this reason, financial planning deserves to be regulated in order to be recognized as a profession and help protect the public interest. </li></ul>
  50. 50. Conclusion <ul><li>Financial planning must be recognized as a profession, by the industry and by the public, in order to serve the growing public need for professional, unbiased financial planning services. </li></ul><ul><li>Such recognition cannot come without high standards of practice. </li></ul>
  51. 51. Conclusion <ul><li>The market is more sophisticated and consumers’ needs are increasingly complex. </li></ul><ul><li>Without designations, advisors entering the marketplace will be ill-equipped for it </li></ul>
  52. 52. Questions?
  53. 53. Thank You