SPRING 2013 ISSUE 7
IDE AS, THOUGHTS AND TRENDS IN THE FINANCIAL PL ANNING PROFESSION
P 9 Let’s Call a Spade a Spade
P 3 Protecting Public Interest: CSA Consultation on Best Interest Duty
P 5 Product-Specific Advice Versus Financial Planning Advice: The Distinction is Critical
P 7 The Path to CFP® Certification: What Does it Take?
w w w. f ps c.ca
BY THE NUMBERS
The Value of Financial Planning Study With support from the FPSC Foundation, the Financial Planning Standards Council ( FPSC ®) commissioned a comprehensive longitudinal study to measure the impact of financial planning on the emotional and financial well-being of Canadians.
consecutive years FPSC has commissioned the Value of Financial Planning study.
8,546 Canadians participated in this year’s study.
of Canadians with comprehensive financial plans feel on track with their financial affairs.
of Canadians who work with a C ertified F inancial P l anner®/CFP® professional believe that financial planning has helped them have greater peace of mind versus 63% of those who work with a non-certified advisor.
of Canadians who engage in comprehensive financial planning feel on track to retire when they want to.
of Canadians who work with a CFP professional worry less about money versus only 53% of those who work with a non-certified advisor.
Respondents who have comprehensive plans feel more on track with their financial goals and retirement plans, and are more confident they can deal with the challenges in life; and those who work with a CFP professional are more likely to report benefits of planning.
Financial Planning Standards Council (FPSC®) 902-375 University Avenue, Toronto, ON M5G 2J5 Telephone: 416 593 8587 Toll Free: 1 800 305 9886 Email: firstname.lastname@example.org Website: www.fpsc.ca CFP ®, C ERTIFIED F INANCIAL P L ANNER ® and are certification trademarks owned outside the U.S. by Financial Planning Standards Board Ltd. (FPSB). Financial Planning Standards Council is the marks licensing authority for the CFP marks in Canada, through agreement with FPSB. All other ® are registered trademarks of FPSC, unless indicated. ©2013 Financial Planning Standards Council. All rights reserved.
On My Mind
Why We Need Standards Food standards ensure that we do not consume contaminated milk, meat or vegetables; automobile safet y standards help protect us in a collision; and building standards ensure our homes are structurally secure so the roof doesn’t collapse.
Likewise, standards for various professionals, including doctors, lawyers and accountants, not only spell out the proper duty of care they must adhere to but also dictate the qualifications required to offer the promised services. Professional standards act as assurance to the public that they are protected in matters where there is typically an imbalance of knowledge or power. In this issue of the FP Standard, we discuss the standards FPSC® has set for the financial planning profession in Canada through its Certified Financial Planner®/CFP® certification program and highlight some of the work that goes into crafting these standards to protect Canadian interests. Long before joining FPSC, I recognized the CFP designation as the gold standard in financial planning certification in Canada. I’m proud to note that through the continuous review and renewal of our certification processes and enforcement activities we have ensured the designation remains aligned with the ever-evolving consumer expectations of the profession. I am concerned, however, that only 17,500 of the estimated 100,000 people in Canada who claim to offer financial advice have demonstrated the knowledge, skills and abilities set out in our standards and are held accountable for their professional activities. Except in Quebec, there is no requirement for people who call themselves financial
planners to obtain any credentials. This makes it difficult and confusing for consumers to ensure that the person sitting across from them has met minimum standards to help them plan for their future.
or doctor, and can be confident knowing there are limits to what each can do before having to pass the case on to someone with a higher qualification. This distinction does not exist in the financial planning profession. And it should.
We believe that everyone holding themselves out as providing financial advice beyond that related to product selection must meet certain proficiency and ethics requirements, including specific levels of education and experience. They need to demonstrate their financial planning competence through an examination process; meet prescribed continuing education requirements; and agree to be accountable to a code of ethics, practice standards, and the rules and regulations of a professional body (just as our CFP professionals are today).
The time has come for financial planning to be professionalized in a manner similar to medicine. Without standards that ensure a minimum level of competence, title restrictions, and corresponding duties of care and loyalty, the Canadian public will remain vulnerable. FPSC exists to instill confidence in the financial planning profession. We need to work with product regulators and others to ensure they understand the distinct role and value of financial planning in Canadian society, and to ensure that Canadians can feel a sense of confidence in the financial planning profession and the providers of this very important service.
We recognize that one size will not fit all and that some Canadians may not require all the elements of financial planning in its most realized form. Some are searching for a “simplified financial plan” or guidance that incorporates some elements of the financial planning process to meet their needs—just as some people may need only the services of a pharmacist or a nurse practitioner rather than an M.D. But the difference between the financial planning profession and the medical profession is that Canadians understand what level of service they can expect from their pharmacist, nurse practitioner
Cary List CA, CPA, CFP ®, is President and CEO of FPSC. Cary oversees CFP certification and has spent most of the past decade elevating the standards of the designation and working for recognition of financial planning as a distinct profession.
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Protecting Public Interest: CSA Consultation on Best Interest Duty
The Canadian Securities Administrators (CSA), the voluntary umbrella organization of Canada’s provincial and territorial securities regulators, recently drafted a consultation paper entitled 33-403: The Standard of Conduct for Advisers and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice is Provided to Retail Clients. Its purpose was to provide a forum for stakeholder consultation on the desirability and feasibility of introducing a statutory best interest duty to address potential investor protection concerns regarding the current standard of conduct that advisors and dealers in Canada owe their clients. As a national not-for-profit organization whose prime purpose is to represent the Canadian public interest by establishing, enforcing and promoting appropriately high standards for certification of financial planners, FPSC® offers a unique voice in this dialogue. Prior to submitting our response, we surveyed Certified Financial Planner®/ CFP® professionals to better inform us of the front-line view of the issue. We collected more than 500 opinions and would like to express our gratitude to those who took the time to respond.
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FPSC presented four primary recommendations:
01 Raise the standard for anyone offering financial advice beyond that related to product selection and clearly define what it means to be acting in the client’s “best interest.”
02 Define roles, clarify competencies and level the playing field related to service and financial planning advice expectations.
03 Restrict the use of titles based on roles and required competencies.
04 eave regulation of financial L planners and the financial planning function that goes beyond product selection, to a professional oversight body, or bodies, who will work in partnership with the existing product/capital markets regulators.
The following article summarizes our position. FPSC shares the investor protection concerns raised in the CSA consultation paper. We agree the current suitability standard related to the recommendation of investment products does not, in many cases, adequately serve consumers who are truly seeking unbiased, independent financial planning advice. The vast majority of those people in Canada who imply through title and/or advertising they are financial planners are in fact simply licensed product salespeople. An expertise in product advice gained from licensure does not equate to a qualification in financial planning advice. Nevertheless, many Canadian consumers believe it does, and many so-called “financial advisors” claim it does. They are misinformed, leaving the Canadian public vulnerable to bad advice, with little or no recourse. Many Canadians require guidance that goes well beyond the question of “What product should I buy?” and studies show the majority mistakenly believe that their “financial advisor” is qualified to provide this more holistic financial planning service. Further, they believe that they are protected through regulation and oversight regarding the financial planning advice they have been offered.
The term “advisor” is not currently defined in the Canadian marketplace, (nor, we believe, will it ever be given the disparity of use across the industry). The term “financial advisor” does, however, hold connotations for the Canadian consumer of an individual providing a service that goes well beyond that of product advice or selection. This results in a misalignment of expectations between clients and their so-called “advisors.” This misalignment is a fundamental issue that is not explicitly addressed in the CSA consultation paper, but which lies at the heart of the issue of consumer protection. There is tremendous confusion among consumers, not only over the duty of care or loyalty owed by their advisors and/or dealers, but also over expectations of what constitutes “financial advice” and what consumers can or should expect in the way of planning services from so-called “financial advisors.” In fact, under the current regulatory system in Canada, only product-related advice (i.e., advice related to specific transactions) is regulated at all.
Whether or not any specific investment advice provided without due consideration of the client’s larger financial picture (such as any or all of retirement, estate, children’s education, other short- or mediumterm needs, or income tax issues) is truly in the client’s best interest can never be certain, no matter how sound the investment recommendations.
We have urged the CSA to consider our assertion that all who claim to provide generic financial advice or to offer financial planning should not only be held to a best interest standard, but also be required to demonstrate their qualifications to provide financial planning related services. These requirements would include demonstration that they have met clearly defined, common standards of competence and ethical behaviour so Canadians can be confident that those who claim to offer financial advice are truly competent to act in the client’s best interest. Such requirements should also include continuing education and ongoing professional development in order to maintain and further develop appropriate competency levels. Further, the requisite qualifications and expertise of those individuals claiming to provide financial planning advice to clients should be reflected in the titles they are permitted to use. Those who have not demonstrated sufficient competence should be barred from using titles or holding out as offering services that imply a competence or service level beyond their scope.
CSA members should work in partnership with organizations like FPSC that have a proven expertise in setting professional standards, certifying against those standards and holding people accountable to the standards as they relate to financial planning. By working with an independent non-profit, consumer-focused organization such as FPSC to establish the requirements and monitor the conduct of those providing financial planning advice, we will take a significant step toward ensuring the level of protections that Canadians deserve.
For more information be sure to read: — Cary’s “On My Mind” on page 2 — “Let’s Call a Spade a Spade” on page 9 — “Product-Specific Advice Versus Financial Planning Advice: The Distinction Is Critical” on page 5
Finally, we believe the best way to protect Canadians is to enact a professional oversight body model, where an organization such as FPSC would provide oversight of nonproduct-specific financial planning-related advice, leaving professionals to professional oversight and securities regulators to transaction/ product/sales oversight. The concept of a sanctioned professional oversight body would also include being charged with setting and clearly defining competencies and performance expectations of individuals claiming to offer financial planning services. This would not only help to distinguish the services offered but also serve to clarify the corresponding duty of care and loyalty of any individual purporting to offer financial planning services.
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Product-Specific Advice versus Financial Planning Advice: The Distinction IS Critical
There are more than 100,000 so-called “financial advisors” in Canada; however, only 17,500 have met the rigorous requirements of the CFP® designation. The Canadian public deserves better. Canadians should be able to know, based on their representatives’ titles, what they can expect in terms of the t ypes of advice and services offered, and the dut y of care and loyalt y owed by their representative.
Opticians, optometrists and ophthalmologists all deal with the care of individuals’ eyes. While some of the services and competencies that they offer may overlap, there are clearly defined and distinct roles for each. There are specific rules regarding what services each may offer or what they may call themselves, and the required duty of care is clearly spelled out for each. That is, consumers know that, while an optician is earning a living from selling glasses, he is still providing some added value to the purchase decision, and is required to make sure that the glasses are a reasonable fit for their intended purpose. At the other extreme, consumers know an ophthalmologist has the knowledge and skills, and provides medical care far more extensive than an optician or optometrist related to one’s eye health. Similar clarity of definitions and competencies exists for most other industries and professions (e.g., law clerk/paralegal/lawyer). If we are to truly address the core of consumer protection concerns, a similar clarifying of roles and competencies is sorely needed within the financial services industry.
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The fact remains that securities regulators regulate transactions, not necessarily the advice that may have led to the transactions. Many dealers or financial services representatives, similar to the optician with respect to eye health, are neither qualified to, nor truly offer, advice that one would consider independent professional advice related to one’s financial health (i.e., financial planning); instead, they offer advice solely related to a product transaction. In most circumstances it would be impossible for a so-called “advisor” to provide advice in the client’s best interest without the knowledge, skills and abilities to understand more than what is currently required under today’s product-based regulatory regime. This point is best illustrated in the following examples:
A client is advised by her financial advisor to take the commuted value of her indexed defined benefit pension and reinvest the assets into securities, for which the advisor will receive fees or commissions. The advice to take the commuted value was not in the best interest of the client, as she was only two years away from an unreduced pension; however, the resulting investment recommendations were made in good faith and represented the best investments for the client. Under the current regulatory environment, the products met the client’s risk profile, were in line with her long-term investing objectives, had low MERs and appeared to be the best ones for the client in the circumstances.
Many low- and middle-income Canadians are encouraged to contribute to an RRSP, often with the assistance of an RRSP loan. While the investment recommendations related to the RRSPs may in fact be the “best investments” for the client in the circumstances, the advice that led the client to make an investment in the first place frequently is not.
In this case, in the absence of defined competencies, roles, responsibilities and performance expectations of the so-called advisor related to the broader financial planning advice being offered, it is likely that this advisor would meet a best interest standard related to the transactions being regulated even though the original advice was biased and not in the best interest of the client.
These and other common practices in the industry demonstrate that often the true value of advice lies not in the products being recommended but the broader non-product-related financial planning advice that occurs before any product recommendations are ever contemplated. The planning advice provided regarding critical questions such as, “Should I invest in an RRSP or a TFSA?” “Should I take the commuted value of my pension or a deferred pension?” or “Should I borrow to make an RRSP contribution?” can have significantly greater impact on the future financial well-being of a client than the question of whether a particular product was or was not the right, or “best,” investment. When considering standards for the profession, there needs to be a recognized distinction between the narrow form of advice related to selecting a product that may be the “best product” for the client (which is currently regulated), and the broader, unbiased, independent, non-product-based advice that we deem financial planning.
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The Path to CFP Certification: What Does It Take?
Interview with Joan Yudelson, CFP® Director, Education, FPSC ®
Work Experience Core Curriculum
In 2010, FPSC initiated the new Path to CFP Certification with multiple ex aminations, an additional year of work experience and an added Capstone Course. Why was this new path established?
The design of the new path to certification program specifically addressed feedback we received from candidates, employers and educators. The program provides candidates with opportunities to demonstrate success at stages along the path to CFP® certification and better prepares candidates for their roles as Certified Financial Planner®/CFP® professionals by more fully aligning with the CFP ® Professional Competency Profile—the set of knowledge, skills and abilities expected of CFP professionals. This means more competency-based learning focused on the application of technical knowledge to real-world client situations and culminating in the development of an integrated financial plan based on a real-life client scenario. The requirement to successfully complete the Capstone Course and at least one year of work experience ahead of writing Financial Planning Examination Level 2 (FPE2®) is designed to prepare candidates for the second examination and to enhance their skills for the ultimate practice as a CFP professional.
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The addition of a second exam, consisting primarily of constructedresponse questions, further supports the development of professional skills by requiring candidates to proactively address client needs. The changes require students to demonstrate not only their understanding of financial planning technical knowledge, but also how to apply that knowledge to real-life scenarios, as well as their ability to integrate financial planning components, which is key to optimizing a client’s situation.
The Capstone Course is a significant addition to the path. It requires candidates to demonstrate an ability to think and act across all financial planning components simultaneously, and an ability to apply the technical knowledge learned in the Core Curriculum program to develop a fully integrated financial plan based on a real-world client. The duration of the course varies depending on the education provider, but for most it is equivalent to a 40-hour credit course offered by an accredited post-secondary institution.
Work Experience We added a third year of work experience for assurance of the candidates’ ability to apply financial planning–related knowledge in a business setting. The intent was to further refine candidates’ technical competence while developing the professional competency demanded by Canadians.
Registered Candidate Program The new path includes the introduction of the Registered Candidate Program, available to candidates who have passed Financial Planning Examination Level 1 (FPE1®). FPSC Registered Candidates have demonstrated competence in addressing client situations at low and moderate levels of complexity, such as those they may encounter in introductory or entry-level industry planning positions.
Financial Planning xamination Level
At least 1 year
Capstone Course Take anytime after Core Curriculum
Remainder of 3 years
Financial Planning Examination Level
Maintain FPSC Registered Candidate status
FPSC Registered Candidates must agree to abide by the Standards of Professional Responsibility for CFP ® Professionals and FPSC® Registered Candidates, ensuring greater confidence in these individuals with both employers and clients.
and essential to the practice of financial planning.
What Is the Continuing Education (CE) Requirement for CFP Professionals?
In order to offer an FPSC-approved Capstone Course, educators must demonstrate how their Capstone Course will meet these two requirements:
Why a Capstone Course?
— Ensure that all aspects of the Competency Profile are covered through FPSC’s education requirements. Emphasis is given to aspects of the Competency Profile that may not be fully covered in the Core Curriculum courses.
CE is recognized as an integral component of the continuous professional development of a CFP professional. FPSC requires documentation of completion of at least 20 hours of continuous professional development activity on an annual basis and recommends at least 10 additional hours in non-documented activities.
Core Curriculum courses focus on the competencies and underlying technical knowledge within a specific component of financial planning in isolation. Although effective for mastering the core financial planning competencies, this approach results in limited opportunities for the integration of financial planning competencies across components of financial planning and for the demonstration of professional skills. The Capstone Course requirement addresses this issue. The Capstone Course’s focus is on the fundamental financial planning practices, professional skills and integration that are inherent in the Competency Profile
—The completion of an individual financial plan by each student based on a case study provided by FPSC. This step assures FPSC that graduates are able to analyze and synthesize information in a realistic scenario. It demonstrates integration of the information from at least four of the six financial planning components in order to make suitable recommendations.
Qualifying CE activities may be found by consulting the listing of FPSC-approved CE Activities located on the FPSC Online Dashboard. Activities not on this list may also qualify, but CFP professionals will be required to self-assess these activities for fit to the Competency Profile and the activity will be subject to audit by FPSC.
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Let’s Call a Spade a Spade Choosing the proper financial practitioner remains a daunting task for many Canadians. They are disadvantaged when seeking out financial advice given that titles used by advisors and dealers are generally not restricted and often do not reflect the competencies or primary function of the role, nor are there any restrictions on proclaiming to offer “financial advice” or “financial planning.”
This problem is exacerbated by an alarming trend within the industry: it is now common to claim to offer financial advice or financial planning as a marketing tool to attract investors when the primary purpose of the relationship is to sell products. There are no safeguards to hold those who claim to be “financial planners” or “financial advisors” (or those who claim to offer financial planning or financial advice in general) accountable for the service they provide to the public. Without restrictions regarding the use of titles based on clearly defined roles that apply equally to all financial practitioners across all sectors and jurisdictions, consumer confusion and misalignment of expectations will continue to pervade the industry.
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Titles such as “financial planner” and even “financial advisor” imply to consumers a higher degree of expertise than the limited knowledge, skills and abilities required under today’s product-based regulatory structures. To ensure Canadians receive the scope, level and quality of advice they deserve, titles such as “financial planner” and any related titles should be restricted. The restriction should not be left to the judgment of individual firms, but should be accorded to only individuals who have met independent, industryaccepted standards such as the Certified Financial Planner®/CFP® designation, which include having been assessed against clearly defined competencies— that is, knowledge, skills, and judgments accompanied by appropriate qualifications and resulting certifications or designations. Further, mechanisms must be created so that any such restrictions are determined by one or more organizations expert in the required competencies, expert in establishing appropriate standards, and expert in certifying against those standards, and that apply equally to individuals working in various sectors across multiple jurisdictions. Such determinations should not be left to the product regulators or securities selfregulatory organizations independently.
Public Policy Ambassadors Needed “All politics is local” —Tip O’Neil, former Speaker of the U.S. House of Representatives Local constituents speaking directly with their elected officials is an effective way to impact public policy. This is why FPSC® is developing the Public Policy Ambassador program (PPA). Members of the PPA will be provided with training, tips, talking points and materials to support their lobby efforts with local officials. Canadians deserve qualified financial planners, and CFP ® certification represents the standard for financial planning qualifications. Government at all levels will benefit from the education you can provide regarding the need for professionalizing financial planning, and the financial risk that all Canadians face, given the current lack of standards and regulation overseeing the profession.
Questions If you have questions about the program or wish to put your name forward for consideration, contact us at: email@example.com
We spoke with Mark and asked him five rapid-fire questions:
How has the CFP designation helped your career and how has it assisted you in your current role? As a practising financial planner, it was absolutely vital. Now, in my current role, it provides me with requisite perspective on issues that affect life insurance, policy, pensions and so on.
Spotlight on CFP Professionals
What was the best piece of financial advice you ever received? My parents taught me to understand the difference between needs and wants.
Name Mark Prefontaine, CFP ® Title Assistant Deputy Minister, Financial Sector Regulation and Policy Location Alberta Treasury Board and Finance
Is there a CFP professional you know who has taken their designation to interesting places? Let us know at firstname.lastname@example.org. We may turn the spotlight in their direction!
Mark Prefontaine is a CERTIFIED
What was your largest financial misstep?
FINANCIAL PLANNER ® professionaL
Not understanding the value of the advice my parents gave me soon enough.
who has taken his designation on an interesting career path.
Prefontaine received his undergraduate degree in Honours Economics and Commerce from the Royal Military College of Canada in 1994, earned his Certified Financial Planner® designation in 2000, became a Chartered Financial Analyst in 2006 and received his MA in Interdisciplinary Studies from Royal Roads University in 2008. He began his career as an officer in the Canadian Armed Forces and, after five years of service, joined his family’s financial planning practice, working alongside his father and brother. After eight years as a planner, Mark’s self-proclaimed “itchy feet” resulted in his looking for a new challenge. He was drawn to the public sector where eventually he became one of the highest-ranking public servants in the Alberta government. Mark’s current title of Assistant Deputy Minister, Financial Sector Regulation and Policy includes the roles of Superintendent of Pensions, Superintendent of Insurance, and Superintendent of Financial Institutions.
What do you consider your most valuable possession? My time.
Can you describe your most satisfying client interaction? Our mission is to provide “policy and regulatory oversight for the financial, insurance and pension sectors that is effective, fair and in the interests of Albertans” so anytime we can get feedback that people feel is fair and effective, that is satisfying. One memorable interaction involved a staff member who was able to assist a homeowner after the 2011 Slave Lake wildfire. The owner didn’t have insurance coverage but we were able to ensure they were covered and to mitigate a significant loss for them and their family at a particularly difficult time.
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Building Examinations That Matter By Derek Dedman, CFP®, CFA, Technical Content Expert, FPSC®
Part 1: Creating the Perfect Question Certified Financial Planner®/CFP® professionals meet high standards of education, examination and experience; abide by the FPSC® Code of Ethics, which is actively enforced by FPSC; and keep current through mandatory continuing education. The CFP ® Professional Competency Profile established by FPSC for Canadian CFP professionals was the primary source for best practices for CFP professionals worldwide. FPSC is an international leader in the financial planning certification and enforcement processes. We often refer to the “Four Es” that form the foundation of a robust certification program: Education, Examination, Ethics, and Experience. The following article deals with the second “E,” Examination. This is the first in a series to highlight the complete exam development cycle, demonstrating the various steps required in the construction of valid, reliable and fair examinations. We will begin our series with examination item development, a process that takes place across the country two to three times annually at workshops attended by selected CFP professionals who volunteer their time, experience and expertise to write realistic and relevant items.
Stakeholder Engagement Is a Cornerstone to Examination Item Development Participants are critical for successful item-writing workshops. This is where the pool of 17,500 CFP professionals is called upon. Participant selection is made based on several criteria. For a national certification exam, it is important to have diverse demographic and regional representation. Other factors such as area of specialization, professional experience, writing experience, and additional professional credentials also play a role in the selection process. Candidates are interviewed by FPSC staff and, on average, the top eight candidates are chosen per workshop. Selected participants are required to review FPSC’s Item Writing Guidelines in advance of the workshop. This document acts as the introduction to the itemwriting process and provides, in great detail, the steps necessary to create valid exam items. Using the examples provided, participants are asked to begin documenting actual client scenarios/ situations they frequently come across in their practice that might be relevant in the creation of new exam items. Item-writing workshops take place over the course of one week. Led by FPSC experts, participants receive a day of extensive training that includes an overview of the complete item-
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development process and an introduction to best practices related to examination item preparation. Very specific itemwriting criteria are explained and reviewed by the group with practical examples. Given the highly confidential nature of the work, participants are gathered in one room and are assigned secured workstations to produce their items. A full library of reference material is available for use. During the writing period, FPSC experts closely monitor the process and are available to answer questions and offer guidance to the participants. After initial submission of an item, FPSC’s testing expert completes a thorough structural review and provides the author with detailed feedback as necessary. Once the item is complete from a structural perspective, it is sent for group review. A sub-group of participants, led by a FPSC technical content expert, completes a thorough analysis of the items submitted. As a team, CFP professionals comb through each item to eliminate any technical deficiencies or ambiguities to ensure a valid, complete, fair and relevant exam item. The process is repeated throughout the week, with participants switching between item writing and review. While this may sound like a thorough and exhaustive process, it doesn’t end here. Look for the next edition of the FP Standard where we will follow the journey of an item trying to make the cut to be included on the exam.
ETHICS CORNER: HIDDEN FEES Fee disclosure has always been a hot topic, garnering mixed responseS. Do you feel that it is important to disclose not only how you’re being paid, but also how much? Is it important to disclose all fees?
Principle 5 in the FPSC® Code of Ethics states that “fairness requires providing clients with what they should reasonably expect from a professional relationship, and includes honesty and disclosure of all relevant facts, including conflicts of interest.” FPSC reached out to Certified Financial Planner®/CFP® professionals to hear how they deal with this ethical dilemma. Here’s how two explained their approaches.
Got an opinion? Email: email@example.com
Ian Collings, CFP® Vancouver, British Columbia
John J. De Goey, CFP® Fellow of FPSC™, Toronto, Ontario
James and Margery were on the doorstep of retirement when I met them. James was an inquisitive engineer, which led to a variety of poignant sales discussions before they became clients. Among the topics discussed: fees.
Using a simple one-page compensation disclosure form (with client sign-off ) offers a number of clear benefits for clients. These forms create an opportunity for greater transparency, since any planner can clearly distinguish how and how much she will be paid. In addition, clients are able to make informed decisions regarding the business model that is best for them. Asset-based fees, hourly fees, commissions and salary plus bonus are all potential options.
How are you paid?—Are your interests aligned with our retirement goals? How much are you paid?—Are we going to get good value for the services you provide? Prospective clients are often uncomfortable asking these critical questions. They weren’t looking to buy financial products; they were looking for a planner, an advocate to help them manage their life savings. For this reason, fee-based investment accounts appealed to them. James and Margery saw value in transparent fee disclosure because: 1. Fee payments would continue only as long as they wanted my services. 2. My advice and expertise was not influenced by hidden fee structures. 3. Fees paid could be tax deductible— similar to accounting and legal fees. Some financial products involve hidden commissions that set up incentive structures which can result in the advisor’s interests diverging from his clients’ interests. James and Margery knew this, which was why a nontransactional approach suited their needs. Full disclosure allowed me to demonstrate an alignment of interests.
Adding a disclosure about the existence of both commissions and trailing commissions can debunk the widely held perception that mutual funds are “free.” Many planners do not lie or misrepresent facts, but they often elect to be less explicit about both the amount and nature of the compensation they receive. Many elements of advisor compensation are hidden: the details are often buried so inconspicuously that most clients are oblivious to them. From an ethics perspective, written compensation disclosure is something any reputable practitioner could present to ensure comprehension and buy-in. John De Goey is a Vice President and Associate Portfolio Manager at Burgeonvest Bick Securities Limited (BBSL ). The views expressed are not necessarily shared by BBSL.
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What’s Happening @ FPSC _Canada It’s always busy at FPSC. Below is a brief account of a few of our most recent undertakings. For more information go to www.fpsc.ca
President’s List Announced Congratulations to Jennifer S. Harris, Lindsey Whitehead and Wesley Fong, the top three candidates who wrote Financial Planning Examination Level 2 (FPE2®) in December 2012, and the most recent additions to FPSC’s President’s List.
New Governance Structure In December 2012, our Board of Directors announced a new governance structure that replaces the former member organization framework. Find out more at www.fpsc.ca
Policy Submissions FPSC regularly comments on issues relating to the development of the financial planning profession in Canada and worldwide. Recent submissions include: — The appointment of a Senate Committee for Financial Literacy Leader; — Canadian Securities Administrators Best Interest Standard consultation paper (refer to pages 3–4); — Mutual fund fee structures; — IIROC guidance on use of business titles and financial designations (refer to page 9).
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CFP® Professional Volunteers — We would like to thank the 17 CFP professionals in Ottawa who stepped up to volunteer their time with the Ottawa Area Children’s Aid Society and provide financial literacy training to at-risk youth. — In November 2012, FPSC partnered with Junior Achievement of Canada to improve the financial literacy of young Canadians. Thank you to all the CFP professionals involved in this initiative. — FPSC would also like to thank those CFP professionals in the Greater Toronto Area who have volunteered to join the mentorship program with the Chinese Professionals Association of Canada (CPAC).
Enhancements to Enforcement Processes Our Enforcement Policy Committee has introduced a number of changes to the current enforcement process and the Disciplinary Rules and Procedures. Review the updated changes in the Complaints & Enforcement section of the FPSC website.
Introducing the CE Approval Program In late 2012, FPSC introduced the CE Approval Program to assist CFP professionals in selecting continuing education activities that have been pre-approved for credit toward their certification renewal. A full list is available on our website. Check back often as new activities are approved on an ongoing basis.
Item-Writing Workshops Our examinations department recently held two item-writing workshops in Banff, one for the development of multiple-choice questions and another for constructed-response questions. We would like to thank the CFP professionals from across Canada who participated in developing exam content.
FPE1® Practice Exam Now Available FPSC is pleased to offer a Financial Planning Examination Level 1 (FPE1®) Practice Exam, which is now available to FPE1 candidates who have registered, or are registering, to write FPE1. More information regarding this invaluable study aid is available on the FPSC Online Dashboard.
FPSC Foundation Introduces Founders’ Club Status Founders’ Club status was introduced to honour and recognize those individuals engaged in the financial planning profession who are passionate about supporting the development and dissemination of research on financial planning in Canada. Their financial support in the Foundation’s efforts is invaluable. To find out how you can join this prestigious group, contact Stefanie Linton, Executive Director via email at firstname.lastname@example.org
CE APPROVAL PROGRAM CREDITS YOU CAN COUNT ON ™
ASSESSED. APPROVED. ASSURED. Introducing FPSC’s CE Approval Program. WWW.FPSC.CA
LOOK FOR THIS SYMBOL AS ASSURANCE OF FPSC-APPROVED CE ACTIVITIES AND CE CREDITS.
YOU CAN HELP SHAPE THE CANADIAN FINANCIAL PLANNING LANDSCAPE GIVE TODAY! WWW.FPSCFOUNDATION.CA
The FPSC Foundation is a charitable organization that is committed to developing and promoting financial planning research and education for the benefit of financial and allied professionals, education providers and the Canadian public.
Published on Apr 26, 2013