Securities Advice Without Sales

 In Value For Money Investing

Ontario is launching a review of regulations relating to financial advisors and planners to help investors and consumers make informed investment and financial choices, as well as enhance oversight in this sector. Unlike many financial service sectors in Ontario, financial advisors and planners are not subject to general regulatory oversight, which could leave consumers and investors vulnerable. This review will focus on addressing this gap by examining more tailored regulations. To conduct such a review the Ontario government appointed an “Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives.” The committee is taking submissions from the public and I thought I would share excerpts of my submission to the committee.


My Journey as a Financial Planner

My name is Gordon Stockman.  I am an Advice for a Fee Financial Planner.   I have decided it is best to tell you a story.   It is my story of the highlights of my journey as a financial planner.   I trust it will be engaging enough to get you through to my final singular notion.

In 1995, I decided to become a financial planner.  I flirted with returning to my roots as a Chartered Accountant (CA 1983) delivering tax and business advice to professionals and small businesses, but instead chose to be more forward looking and become a future orientated planner not a preparer of past financials and tax returns.

In 1995, it was near impossible to get a family or an individual to pay for a financial plan.  Few knew what it was and fewer still knew they needed it, but most important it was available everywhere for free, courtesy of the mutual fund industry.  Selling against free is remarkably hard.  So in January 1996, I joined a national mutual fund distributor.   At that time the distributor was starting to roll out the most extensive laptop based financial planning platform in the industry.  They were making it possible for all of their representatives to develop as skilled planners, they were mandating the attainment of the CFP designation within 5 years of your appointment (CFP 1998) and they had customers.  I would just have to get used to commissions.  As my skills grew, it became ever more apparent that all financial planning results do not necessarily lead to the purchase of that company’s mutual fund.   Having trained as a Chartered Accountant, I was bothered in every way by the lack of objectivity and independence, real or perceived.  Failing to remain objective and independent hampers the ability to provide a truly honest assessment.  Getting paid only if a sale was made rendered all planning and advice suspect.  If I put the client‘s interest solely before mine, sales would be challenging and they were.  An objective and independent model, that put the client’s interest first was needed.   In 2003, my wife and two friends, with business advice from me, rolled out a new model, Flat Fee for Service Financial Planning.  Thus Efficient Wealth Management Inc. (EWM) would do the financial planning and the investment implementations would be through an exclusive outside Fee for Service referral arrangement.  Yes, it was still not time for a pure Advice for a Fee model because of client costs.  In addition to the usual FREE competition, it was evident that if a client did choose to pay for independent planning, such advice could not result in a much needed cost savings from their investment advisor.

In 2005, I left mutual funds to join EWM.   I was for the first time in over 9 years, not registered to buy and sell mutual funds.   My objectivity, independence and integrity were restored but my ability to be completely effective was not.  Many clients followed me.  I updated many plans or initiated new ones.  However, I was unable to discuss with any of them, the mutual funds they owned.  The same funds they acquired when I was their representative.   I have searched hard for a business term to describe this quandary, but the best I came up with is “It’s silly.” Financial planning entails many things: cashflow planning, tax optimization, risk assessments for capacity and tolerance, withdrawal strategies, use of guaranteed instruments and asset allocations to support all.  However, at the implementation stage as a non-regulated individual our voice must be silent with regard to the investment selection, even when our knowledge of both the individual and the security is superior.

For the past 10 years, I remained un-regulated by IIROC, MFDA or FSCO and the OSC.  It was not that I did not want to be registered; it was I did not want to be registered to trade.  OSC requires registration of individuals providing advice on securities either direct to them or through a SRO.  However, ALL methods of registration result in the ability to trade whether at the behest of the client or with discretion for the client.  Any organization you joined was a “trading” organization.  I followed all OSC rules carefully though frustratingly.  Advice on securities was not proffered.  Exclusive referral arrangements made it easier but being misunderstood by many did not.

People seek advisors not for the primary reason of transaction execution, but advice – including with respect to taxes, estates, retirement and risk management.    Transaction execution should certainly remain the role of IIAC or MFDA member.  However, a more holistic approach would recognize that the assets within a plan are a key point of discussion between clients and their financial planners even with no trade pending.  Securities advice is often necessary and desired from the planner and should be allowable when experience and competence are present.

Professional Financial Planners need to be able to discuss securities with individuals.   OSC’s requirement for registration of individuals providing advice on securities is proper but too narrow.  The industry knows that advice is what is sought first but registration is focused on trade execution only.  A method to register individuals for the provision of advice only would meet the public`s needs for seamless holistic advice.   It is not necessary, nor should it be desirable to have all Financial Planners registered to sell securities, but they should be able to provide advice on them with the appropriate experience and education.

The Expert Committee is asked to consider that any resultant financial planning regulations should consider the possibility of providing “security advice only”, without trade registration, when assets are held in a properly regulated account.   Financial Planning services are incomplete if we cannot provide specific comments, alternative solutions or second opinions about the client’s investments.

Value For Money Investing means we wish to allocate and use our hard-earned resources in order to improve investment outcomes in a continuous and sustainable way at a fair and equitable price. In other words, achieve good investment returns AND receive fair value for the services provided. Costs do matter!

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