It’s Time To Overhaul The Finance Industry
Canadians have been abuzz with the news of shady bank practices and the “what’s in a name?” controversy over advisors vs advisers instigated by the CBC. But the real problem is how the entire financial industry is regulated.
Provincial regulators need to overhaul the requirements for the financial industry to better protect investors. Sure, they’ve recently nibbled around the edges by requiring investment companies to disclose the fees they are being paid, and advise the investor of his or her personalized rate of return – but they still have a long way to go.
Let’s call a spade a spade – and a salesperson a salesperson
In Quebec, the finance industry is more tightly regulated. But in the rest of Canada, financial representatives can call themselves any number of professional sounding designations.
Does your financial adviser provide advice that’s in your best interest – or do they just sell a product? Investors can’t be blamed for failing to recognize the difference.
There’s nothing wrong with being in sales – even commissioned sales. We deal with salespeople every day. And, some are very good. When I’m buying a duvet for my bed, a washing machine, or a new car, and my sales person spends some time determining my needs, gives me a few choices that could meet those needs, and outlines the benefits of each choice, it ensures I’m happy with my product as I head out the door. But there is no mistaking that they are, in fact, sales people (or associates as they prefer to be called). When someone is a financial sales associate, you know exactly who you are dealing with.
CFP – The Gold Standard in Financial Planning
For the past several years the media has trained the public to choose financial advisers with the CFP designation. This credential is known as the “definitive professional designation for financial planners and advisers”.
The Canadian Institute of Financial Planners offers a four-course web-based certification program with a brutal six-hour final exam.
Before receiving the certification, students must have at least three years of relevant experience in the financial industry and submit a comprehensive sample financial plan for review.
Many people in the financial industry have already earned other designations such as Chartered Professional Accountants (CPA) and Chartered Life Underwriter (CLU), and CFP courses can be a component of degrees in business, finance or economics.
CFP certification is held by many employees in banking, insurance and mutual fund sales.
It’s time to up the ante
The financial world has changed astronomically in the past few decades. People’s situations have become more complex and the amount of financial information and products can be overwhelming.
As well, there are so many separate certifications held by financial professionals such as:
- CFA – Chartered Financial Analyst
- CHFC – Chartered Financial Consultant
- CIM – Chartered Investment Manager
- RFP – Registered Financial Planner
- TEP – Trust and Estate Practitioner
These might look good filling out a business card but they are confusing to the general public who don’t know who exactly they should turn to for help and advice.
I propose that going forward all the various financial and investment planning courses become consolidated into a proper four-year university degree. These professionals can then have an encompassing regulatory body that ensures they act in the best interests of their clients – rather like CPAs or lawyers.
Canadians who need investment management and advice and financial, estate, and/or business succession planning will then know exactly who to turn to and exactly what it will cost them
I think investors deserve so much better than what’s available to them now.
Interesting idea. As an outsider, this is how I see it. There is really two components to the wealth management industry. There is portfolio management, which is now a commodity that can be done with an algorithm and worth a few basis points, and there is financial advice which can have immense value. The wealth management industry has conflated these two components so that often people are paying enormous asset based fees for portfolio mangement and getting little or no advice. Paying large asset based fees makes about as much sense as your doctor saying he will look after your health for the year for a percentage of your financial assets. I think these two components ought to be payed for separately. Difficult to see how this could be done – only by people becoming educated and demanding such services will the market place respond. Certainly an integrated wealth management degree with a fiduciary standard of care, as you suggest, would be a good step.
Just to correct a couple of the certifications you list:
CFA – Chartered Financial Analyst (not Certified)
CIM – Canadian Investment Manager is the previous term; CSI has updated the designation by essentially adding an experience component and renaming it Chartered Investment Manager to internationalize it. Same three initials: CIM® but with the ® to distinguish it from the old (but still valid) credential.
I’m not a big fan of the idea of consolidating all the credentials into a 4-year degree. I actually think it’s better to have people come from a variety of academic backgrounds so that there is a diversity of thought and disciplines represented among those in the investment profession. I’d be more inclined toward a graduate-level degree or certificate built on an undergraduate degree in any discipline.
What we really need is a fully-funded CPP that pays people 50% of their final salary (that’s the number that Don Morneau’s chief actuary recommends). Then, after people’s full retirement needs are taken care, we really don’t need anymore.
50% of salary means no one will save much anymore and rewards party people that don’t think too much about retirement. That is socialism and what happens as more and more age and retire. The youth of Canada will have a bigger and bigger burden.
CPP and OAS is minimum for Canada so few are in poverty and the rest, save and invest if you want to be better off in retirement (as it should).
It should be clarified that the CIFP only offers the core curriculum component of the CFP. After you write 4 exams with them you write a 4 hour exit exam. University credit can also be used towards completing the core curriculum.
THEN you complete FPE1 which is 4 hours, CAPSTONE which is a financial plan then finally FPE2 which is 6 hours. After all of that is done and 3 years of work experience you get your CFP. All CFP holders also must follow certain ethical standards or they can lose the designation.
The idea behind various designations is specialization. A CFA has an incredible technical aptitude which is why they often go into portfolio management and analyst positions. CFP is a specialization in creating comprehensive financial plans and suitable investments based on time horizons and risk tolerance. A lot of fee only firms staff people with different designations.
Individuals seeking financial advice just have to do a little research, like you would with making any big decision.