An alarming number of consumers who sign up with a financial planner don't know whether their new adviser is qualified to give financial advice, say experts.
"The vast majority of Canadians who seek out a financial planner are either unaware that financial planning is unregulated or simply assume that their planner is qualified," says Cary List, president and CEO of the Canadian Financial Planning Standards Council (FPSC). "We've done studies that indicated two out of every three people who believe that they're working with a Certified Financial Planner are not."
The Certified Financial Planner (CFP) and Registered Financial Planner (RFP) are respected professional designations. Neither credential is mandatory for conducting business as a financial planner in Canada. Nor does Canada have a central authority to oversee financial planner conduct, investigate consumer complaints or impose penalties to ensure professional ethics and competence.
Coalition proposes new rules for financial planners
Five non-profit professional organizations have combined forces to address this regulatory void, forming the Coalition for Professional Standards for Financial Planners. In addition to the FPSC, participants include the:
- Canadian Institute of Financial Planners (CIFPs).
- Financial Advisors Association of Canada (Advocis).
- Institute of Advanced Financial Planners (IAFP).
- Institut québécois de planification financière (IQPF).
The coalition's goal is to implement nationwide governance of financial planner qualifications and ongoing regulatory supervision.
Cary List says that one of the most significant coalition proposals is the introduction of a financial planner license. The overseeing governing body will be able to revoke that license and therefore prevent an individual from practicing as a financial planner.
Because financial planning is such a detailed and comprehensive discipline, it will take time before the coalition finalizes licensing and other proposed regulatory solutions.
Searching for a qualified financial planner today
If you have an immediate need for a financial planner, most coalition-member websites feature online directories or searches. However, bear in mind that you are responsible for doing your own due diligence before hiring a planner.
Based on the coalition's statement of principles, CreditCards.ca presents a basic checklist of questions to help you screen for legitimate financial planners who will best serve your interests:
Ask the planners what qualifies them to offer financial advice, what training they have successfully completed and which professional designations they hold. It's also important to find out if they take continuing education courses to keep up with the many changes and developments in the financial planning field.
Tip: Confirm planner credentials and qualifications with the appropriate regulatory and certification authority.
2. Professional experience.
Ask how long the planners have been in practice, the number and types of firms with which they have been associated and how their work experience relates to their current practice.
Tip: Choose a financial planner who has at least two years of experience advising people in similar situations as your own, or longer if you have special needs.
3. Core competencies.
Ask planners to describe all services offered, and inquire about specialties at which the planners have been most successful. Also, confirm whether planners sell financial products or provide advice only. Planners who sell financial products such as insurance, stocks, bonds and mutual funds, or who give investment advice, must be registered with provincial regulatory authorities and may have specific designations.
Tip: Interview at least three candidates before choosing the best planner based on core competencies.
4. Potential conflicts of interest.
Ask planners to detail any business relationships with companies that supply financial products that the planners sell. Focus on such benefits as commissions, advertising and promotional subsidies -- anything that might entice planners to put their needs before yours. These are reasonable questions given that honesty, trust and communication are critical to the success of any financial planning relationship.
Tip: Ask planners to document possible conflicts of interest in writing.
5. Professional oversight.
Ask planners whether they are members in good standing of one of the Coalition organizations or similar associations, and whether they subscribe to a professional code of ethics, such as the Certified Financial Planner Code of Ethics. It's also fair to ask if planners have ever been the subject of disciplinary actions by any regulatory body or industry association.
Tip: Verify these answers by contacting the relevant organization to which the planner belongs.
Written letter of engagement.
Ask whether you will receive a written letter of engagement that details the services that the planner will provide, as well as formally defines the roles that you and the planner will play in your relationship. Cary List describes the written letter of engagement as arguably the single most important element of the financial planning process, adding "We think that for both the benefit of the planner and the client, a written letter of understanding or a written letter of engagement is absolutely critical."
Tip: Never enter into any relationship with a planner unwilling to sign a written letter of engagement.