Financial planning organizations in Canada and the U.S. face a number of challenges in their industries, but in Canada, at least, one of the biggest obstacles is a kind of lethargy among consumers to demand unbiased financial advice.
Cary List, president and CEO of the Financial Planning Standards Council (FPSC), recently reiterated that the lack of regulation in Canada as to who can call themselves a “financial planner” is causing a tremendous amount of confusion among Canadians. Many believe they are receiving holistic, unbiased advice and an “element of competence” even though their “financial advisor” may simply be selling them a product.
But Mr. List, whose organization is responsible for maintaining the Certified Financial Planner (CFP) designation, said part of the reason for the ongoing concern is that Canadians aren’t demanding impartial advice.
“The biggest challenge I see in Canada is that there is not the drive from the user of the service – the Canadian population – to demand professional financial planning as a service,” Mr. List told a Toronto Board of Trade breakfast in February. “There is still too much of a lack of understanding of what it entails, what it’s about and the social and economic benefits of financial planning.”
What needs to be done is to ensure that proper designations are created that clearly outline who does what kind of financial work for clients, he said.
Mr. List’s comments are timely, coming following the release of two discussion papers, one by the Investment Industry Organization of Canada on titles and designations and the other by the Canadian Securities Administrators on fiduciary duty.
Mr. List said that at one time accountants in Canada believed they would be the group most responsible for financial planning. When that didn’t work out, financial planning then became attached to the financial industry because there was money to be made on the transaction. In an ideal world, said Mr. List, that money would then help to pay for the unbiased third-party financial advice.
He said that if done correctly, he believes this kind of business model could still work.
“We are unlikely in our lifetime to see Canadians coming to a financial planning firm, taking out their chequebooks and writing a cheque for $3,000 just for a [personal financial] plan. But that is not to say that we can’t look at more creative models that separate the transaction from the independent, unbiased financial advice and demonstrate the clear cost of that independent advice,” Mr. List said.
“I think if it can be communicated that way, we can get there. There needs to be a fundamental change in the psyche of the industry that recognizes those two component pieces and figures out new business models where you can make money, yet still deliver that independent advice.”
In the United States, about half of the 68,000 financial planners work for large firms where the main incentive is to grow assets, Kevin Keller, CEO, Certified Financial Planner Board of Standards Inc. (CFBS) told the breakfast meeting.
But even the large firms recognize that the value of the CFP certification stems from client satisfaction from an advisor looking after an entire financial picture, which in the end will translate into increased assets, he said.
The CFBS has undertaken a four-year, $40-million public awareness campaign to help change consumers’ perceptions and the importance of the CFP. The campaign, involving the web, TV and print, relates what consumers can expect from a financial planner, said Mr. Keller.
Mr. List said the FPSC is currently looking at ways to study the social and economic value of planning and how that information can be spread. He’s hoping he can get government and other groups and companies onside to be partners in the plan.
He compared the use of a financial planner to getting an annual physical. While both are important to health (one physical and one financial) the main difference is that the government helps pay for the annual physical. “So why is this any different? It’s not a unique problem, but what makes it unique is there is no government funding and no government drive to make [financial planning] a professional skill.”
Sandra Kegie, executive director of the Federation of Mutual Fund Dealers, said different mutual fund dealers have different perspectives on the importance of a holistic plan.
“Larger dealers I think have a tendency to want to protect their advisor force and they don’t want to be seen by their advisors to be doing anything that would hamper their continuing in the business as is,” said Ms. Kegie, who attended the Board of Trade talk. “So any sweeping change they approach with a certain amount of trepidation understandably.”
She said her personal view as a long-time compliance officer is that it is a “holding out issue,” in that those who want to call themselves financial planners should have accreditation that supports that.