Client loyalty and trust, based on service – not necessarily fee disclosure or products – will enable financial advisors to demonstrate the value Canadians say they’re searching for in financial services, a Financial Planning Standards Council (FPSC) symposium has been told.

“Matters of trust” are the biggest issue for Canadians when looking for financial advice, Cary List, president and CEO of the FPSC, told the certified financial planners (CFPs) attending the November meeting. List said recent research indicates that about 79% of Canadians say they don’t have strong confidence in achieving their financial goals and only 18% agree that they are knowledgeable about financial matters.

The UK experience

But trust doesn’t come easily, said Phil Billingham, a British CFP who speaks frequently about the recent regulatory reforms that have taken place in the United Kingdom.

Under the so-called Retail Distribution Review (RDR), qualifications for advisors were raised and commissions banned in favour of a fee-for-service model. The model includes advice and building relationships with clients to help them meet their full range of financial planning needs. Many advisors were forced to drop out when the rules came into force on Jan. 1, 2013, but have now come back into the system after achieving the necessary certification.

Billingham said that while countries around the world are reshaping their rules and regulations, they need to recognize that a business focus must remain in place. And he said the focus can’t revolve solely around the debate between fee-based vs commission-based advice.

“Simply being a commissioned advisor does not make you unethical…nor do advice fees make you a paragon of virtue either,” he said. But, he added, all advisors should ensure that their clients understand how they are compensated.

Billingham said RDR focused much of its attention on products, when it should have been concentrating more on clients. He said the flaw here is that a CFP’s role is to help the consumer make the right decisions that don’t always deal with a specific product.

Knowledge and wisdom

Besides, he said, clients easily find information about products online. Where advisors shine is in their ability to provide knowledge and wisdom to their clients.

“While I accept that disclosure is important and while I accept that consumer education is important, I do worry that somehow that gets treated as a solution to try to equalize the playing field to get consumers up to our level,” he said. “I’ve got news for everybody: consumers are never going to be at our level and don’t want to be at our level.”

What consumers do want is to trust their advisors rather than be forced to rely on “buyer beware” – a warning more useful for buying a used car than a financial plan, said Billingham. “Most clients turn around and say: I just have to trust you.”

Advisors can earn that trust by articulating their value proposition, which will include their costs and what they stand for in terms of their integrity.

List told a different session of the symposium that advisors deal with many issues that are not necessarily clear cut and often find themselves in the midst of an ethical dilemma. List said these problems appear very subtly at first, but if not addressed immediately by the advisor they can escalate and potentially lead to professional disciplinary action.

The session used a hypothetical case to examine potential issues with Damiene Lebrun-Reid, FPSC’s director of standards and enforcement, and Rod Burylo, an independent management consultant on ethics. General topics that were raised included conflict of interest and suitability.

Some comments from Lebrun-Reid and Burylo:

  • Advisors need to remain objective at all times and be willing to accept a higher duty of care by putting the client’s interests first at all times.
  • Advisors need to explain and put in writing any potential conflicts of interest. Even though there is no prohibition of a CFP being a power of attorney or an executor, an advisor’s dealership may include words of warning in their policies and procedures.
  • Be firm about confidentiality and do not share information even with a family member unless the client has requested the advisor do so.
  • Always be diligent in taking notes, so if called upon you have something.
  • Make sure the client truly understands the investment and how it works and whether there are any charges for early removal.
  • When it comes to suitability, put yourself in your client’s place; treat the client the way you would want to be treated.

Advisors must also take care about the potential for predatory behaviour from family members or another person when a client is experiencing diminished or lost mental capacity, said John Poyser a Winnipeg-based wealth and estate lawyer.

Poyser said it’s not up to advisors to determine a client’s mental capabilities, so they should presume under most circumstances that a client does have capacity. There are some obvious circumstances where this no longer holds true, such as if a doctor has certified the client no longer has capacity or if a court has issued a statement of lack of capacity.

Potential victimization

Still, advisors should do what they can to try to protect their client if they are worried about potential victimization. If, for example, a client asks for a second person to be joint on an account, advisors should start probing the client alone and asking why he or she wants to go ahead with the idea, all the while taking detailed notes, said Poyser. Advisors may then want to delay until they can look into the issue further and determine the best course of action.

If advisors are still convinced that there may be predatory action, the best thing to do is cut ties with the client, said Poyser.

“If you get painted into that dark corner your choices are going to be very limited,” he said. “The choice is this: get rid of the client because you don’t want to be part of them being victimized.” A firm may well end up being charged with breach of fiduciary duty especially if advisors allow clients to sign papers when they think there may be something amiss, he said.

In many cases, it can be difficult to report the issue to a higher authority since CFPs are bound by rigorous confidentiality. But Poyser said some jurisdictions have laws where advisors may be permitted to make disclosure if there is a criminal offence taking place.

“Trust matters” was the theme of the entire symposium and 2015 was the first year that CFP professionals and FPSC Level 1 certificants in financial planning needed to complete a continuing education credit in professional responsibility.