Understanding the Ontario Ministry of Finance Report Recommendations
If you missed Gord’s previous post, follow the link to read his submission to the Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives.
In 2015, the Ontario Ministry of Finance began selecting an Expert Committee to consider financial advisory and financial planning policy alternatives. Since then the committee has released their report to include their recommendations regarding the future of the financial advisory and planning industry in Ontario. The committee used submission and consultation processes to consult with consumers, industry and regulators. Gordon Stockman contributed during the 2015 initial consultation as well as the preliminary policy recommendations in 2016. To help you make sense of the report and Gord’s contributions, we’ve broken down their findings.
The Issues with Financial Planning and Advice in Ontario
The Expert Committee came to the conclusion that reform is required in the current framework for regulating financial services in Ontario. The Ontario Ministry of Finance’s ultimate goal is to protect consumers and provide a streamlined approach to the regulation of financial services in Ontario. The committee found an excess of misleading titles used in financial services combined with lack of clearly articulated duty to act in the best interest of the consumer. This leaves Ontarians vulnerable.
Due to an aging population and decreased availability of defined benefit retirement arrangements, which was previously a cornerstone of Ontarians retirement security, the issues in the financial planning and advisory industry were exacerbated. The committee found it difficult to implement reform when dealing with many regulatory bodies from the securities, insurance, mortgage and brokering sectors. Due to this issue, they suggest legislative reform that would mandate the implementation of recommendations.
The report outlines three main aspects of the status quo that harms consumers:
- Lack of specific, harmonized regulation of financial planning and financial advice
- Confusing titles and credentials used by the provider of financial planning and advisory services
- Lack of explicit obligation to act in the client’s best interest
The Proposed Reforms
From the main three issues the committee developed a “Tripartite Approach” to the reforms which entails:
- Harmonized Regulatory Framework-The development of specific and synchronized regulatory framework for financial planning and financial advice. This is to ensure no one can provide financial planning or financial advice without regulatory oversight and that regulated providers of financial planning and financial advice are subject to harmonized standards for these activities.
- Titles and Credentials- To clear up confusing array of titles and credentials currently used within the industry. The committee recommends regulators restrict use of titles, so titles accurately reflect credentials that underlie them. Additionally, they recommend strict credential requirement in order to use the title “Financial Planner”
- Universal Best Interest Duty- Enact a universal statutory best interest duty. With some exceptions, every individual and firm in Ontario that provides financial planning or financial advice should be required to act in client’s best interest. The committee supports recent efforts by some members of Canadian Securities Administrators, but they believe that “this duty should apply to all providers of financial planning and financial advice in Ontario, regardless of which body regulates them or what product they sell.”
Within each chapter, the report goes into specific recommendations and rationale for each part of the approach. You can find Gordon’s contributions to the report in Chapter 6: Statutory Best Interest Duty where he is quoted,
“Applying a Statutory Best Interest Duty would make it clear that a legal duty of care has been established. In a commercial environment, it would be expected that all companies, under whichever self regulatory body they are found, would be suitably concerned about the liability associated with failing this standard and would, in their own self-interest, provide rigorous supervision of adherence to this much higher standard.”
The chapter goes onto discuss conflicts of interest and the few exemptions to the proposed Statutory Best Interest Duty.
Lastly, the committee discusses vital issues which extend beyond the specific mandate of the report but require further attention from the government that include potential simplified processes for complaints and remedies for consumers as a result of negligent Financial Planning, Advice and Product Sales. Ultimately, reform will only be achieved in a timely manner if the Ontario Ministry of Finance introduces legislative reform to ensure continuity amongst regulating bodies.
To gain more insight into their recommendations and findings follow the link to the official Ontario Ministry of Finance report.