What Do
Changes In the Suitability Rules Mean to Certified Financial
Planner Professionals? By Anthony R. Davidson, Director
of Standards Enforcement
It is a fact that many Canadian CFP professionals
make a large part of their income recommending and selling
investments. Those that work for organizations that are members
of the Investment Dealers Association of Canada (IDA) have,
in the past, had the duty to only recommend suitable investments
to their clients and to caution clients against making unsuitable
investments on their own. Now, whether we like it or not,
the rules are changing.
IDA rules and the courts have held that investment
firms had the responsibility to protect their clients against
themselves. There was good reason for this, as many clients
were simply incapable of distinguishing a suitable investment
from an unsuitable one. And having an account with an investment
firm provided the opportunity to do themselves financial harm.
There were also unscrupulous financial advisors who would
shirk the responsibility for their recommendations by claiming
such recommendations came from the client.
Last year, discount investment firms who provided
no advice to their clients could apply for an exemption from
their responsibility of ensuring the suitability of investments
they had not recommended. Now the IDA has changed its rules
to allow full-service firms, under certain circumstances,
to have the same exemption. The full details of how firms
can qualify for the exemption, and just what it means to the
investment salesperson, can be found on the IDA website at
www.ida.ca.
What is the significance of these changes
to CFP professionals and how will Financial Planners Standards
Council view your actions?
The Certified Financial Planner designation has
significance to a financial planner's clients. Unless otherwise
informed, a client can expect that the planner with the CFP
designation is capable of providing, and will provide, financial
and investment advice beyond simply recommending investments.
They will likely be aware that the education standards and
adherence to an enforced Code of Ethics raises the CFP professional's
capabilities and standards. CFP professionals must bear this in
mind when dealing with the diminished suitability requirements
of the IDA.
The IDA's published list of "Examples of
What may Constitute a Recommendation" has a number of
examples of specific importance to CFP professionals, including:
when information provided
is tailored to a specific customer.
when a specific trading
strategy is promoted.
when the customers' habits
and investment preferences based on past investment decisions
are used to target investment-related information to them.
And in particular,
when it is held out that the customer's objectives
and financial situation is being taken into account with
respect to any transaction.
FPSC seriously considers all conduct inquiries
with respect to its CFP professionals. It is expected that all CFP
professionals will make clear to their clients what services are
being provided and whether or not those services being provided
include those of a financial planning practitioner. In the
absence of a clear definition of services to be provided,
the situation may well arise in which the client's level of
expectation includes the assumption that their, "...objectives
and financial situation is being taken into account with respect
to any transaction." The ethical responsibility for a
CFP professional is clear. There must be no ambiguity with respect
to the level of service to be provided.
Should a CFP professional accept and process
orders that fall under the "without recommendation"
status?
It seems that as long as the CFP professional sells investments
as a substantial part of making a living, the answer is "yes."
However, whether employed by an exempt discount firm or in
a position where the acceptance of such orders is necessary
to remain competitive, the duty to maintain ethical standards
remains with the CFP professional and is not diminished by IDA rule
changes.
FPSC's advice in this area is to err on
the side of caution and to ensure that your client relationships
are understood.
CFP®, CERTIFIED FINANCIAL PLANNER® and are certification marks owned outside the U.S. by Financial Planning Standards Board Ltd. (FPSB). Financial Planners Standards Council is the marks licensing authority for the CFP marks in Canada, through agreement with FPSB.
are certification marks